Document of The World Bank FOR OFFICIAL USE ONLY Report No. 3241-îAG MADAGASCAR SECOND MANGORO FORESTRY PROJECT STAFF APPRAISAL REPORT May 15, 1981 This document has a restricted distribution and may be used by recipients only in the performance of their officiai dutie. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit = Malagasy Francs (FMG) US$1.00 = FMG 200 FMG 100 = US$0.50 WEIGHTS AND MEASURES Metric System Metric British/US Equivalents 1 meter (m) 3 3.3 feet 1 cubic meter (m ) 35.31 cubic feet 1 hectare (ha) 2.47 acres 1 kilometer (km) 2 0.62 mile 1 square kilometer (km ) = 0.39 square mile (sq. mi.) 1 kilogram (kg) 2.20 pounds (lb) i liter (1) 0.26 U.S. gallon (gal) 0.22 British gallon (imp. gal) I metric ton (m ton or t) = 2,204 pounds (lb) ABBREVIATIONS ADMT - Air Dried Metric Ton FANALAMANGA - Mangoro Forest Company (Project Entity) FOFIFA/CENRADERU - Center for Agricultural Research and Rural Development MDRRA - Ministry of Rural Development and Agrarian Reform TPA - Ton per annum FISCAL YEAR Government January 1 - December 31 FANALAMANGA July 1 - June 30 FOR OFFICIAL USE ONLY MADAGASCAR SECOND MANGORO FORESTRY PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. I. BACKGROUND .......... .................................. 1 A. Project Background .............................. 1 B. The Agricultural Sector .. ....................... 2 C. The Industrial Sector ...... ................. 3 D. The Institutional Environment ............... 4 II. THE FORESTRY AND WOOD INDUSTRIES SUB-SECTORS .... ...... 6 A. Government Forest Services ..... ................. 6 B. Forest Resources ................................ 8 C. Wood Uses . ...................................... 9 D. Projects in the Forestry Subsector .... .......... il III. THE PROJECT AREA ...................................... 12 IV. THE MANGORO FORESTRY PROJECT .......................... 14 A. Project Origin and Preparation .................. 14 B. Summary Project Description ........ ............. 15 C. Project Implementation and Results ............ .. 15 D. Planning for Silvo-industrial Development ....... 15 V. THE PROJECT .................. 16 A. Project Objective .16 B. General Description .16 C. Detailed Features .17 D. Organization and Management .21 E. Accounts and Audit .22 F. Studies .23 G. Environmental Impact .24 VI. PROJECT COST, FINANCING, PROCUREMENT AND DISBURSEMENTS. 24 A. Project Cost .24 B. Financing .26 C. Procurement .26 D. Disbursements .27 This report is based on the findings of an IDA appraisal mission composed of Messrs. F.M. Patorni, N.R. Brouard, R. Chalk and H. Morice which visited Madagascar in May/June 1980. This document has a restricted distribution and may be used by recipients only in the performance of their officiai duties. Its contents may not otherwise be disclosed without Worid Bank authorization. - ii - Table of Contents (Cont'd) Page No. VII. PRODUCTION, MARKETS AND PRICES ............................ 28 A. General ........................................ 28 B. Production .................................. ... .. 28 C. Markets and Prices ................ ................. 29 VIII. BENEFITS AND JUSTIFICATION ............................ ..... 31 A. Methodology and Basic Assumptions ................... . 31 B. Economic and Financial Evaluation .................... 32 C. Project Uncertainties and Risks ...... ................ 35 IX. AGREEMENTS REACHED AND RECOMMENDATION ................. .... 36 SUPPORTING TABLES, CHARTS AND MAPS Table 1 - Project Cost Table 2 - Main Vehicles and Equipment to be Procured Table 3 - Estimated Schedule of Disbursements Table 4 - Government Cash Flow - Plantation for Sawmilling Table 5 - Government Cash Flow - Plantation for Pulp Production Table 6 - Economic Rate of Return - Plantation for Sawmilling Table 7 - Economic Rate of Return - Plantation for Pulp Production Table 8 - Economic and Financial Rates of Return and Sensitivity Analyses Table 9 - Physical Work Schedule of Phase I Annex - Selected Documents and Data Available in the Project File Chart 1 - Ministry of Rural Development and Agrarian Reform Chart 2 - FANALAMANGA Organization Chart Chart 3 - Implementation Schedule MAP IBRD 15290: Forestry Projects in Madagascar MAP IBRD 15266: The Project Area MADAGASCAR SECOND MANGORO FORESTRY PROJECT I. BACKGROUND A. Project Background 1.01 In December 1974, the Bank/IDA approved the financing of a project (Loan 1065-MAG, Credit 525-MAG) to establish 35,000 ha of pulpwood planta- tions in the Mangoro Valley (in addition to 25,000 ha which had been planted before 1974) as part of an afforestation program, which would ultimately reach about 96,000 ha with the objective of providing raw material for a pulp mill to be constructed in the mid 1980's (see Chapter IV for description of the project). The project is expected to be completed in June 1981, at which time the planting targets will have been exceeded by about 10,000 ha and the total planted area will be about 70,000 ha. In June 1979, the Government of Madagascar requested that the Bank consider financing a second phase project- to continue the above afforestation program. The request was based on a report prepared by FANALAMANGA, the entity in charge of implementing the first phase project, and included the plantation of an additional 56,000 ha over eight years, which would be necessary to provide pulpwood to a pulpmill larger than that anticipated in 1974 (para 4.06). After extensive discussions with Government and a pre-appraisal mission in October 1979, it was decided to appraise a smaller plantation project to be implemented over about three years. During the proposed Project period detailed planning for the silvo- industrial development of the Mangoro forest resources would be carried out. This report is based on the findings of an IDA appraisal mission composed of Messrs. F. M. Patorni, N. R. Brouard, R. Chalk and H. Morice which visited Madagascar in May/June 1980. 1.02 Because of the industrial and infrastructure investments which would ultimately be part of the silvo-industrial development of the Mangoro valley, the proposed forestry Project has close links with agricultural, infrastructure and industrial development activities in Madagascar. Bank Group financed projects in these sectors are described below. 1.03 Agriculture. Four projects are under implementation: the Mangoro Forestry Project (US$13.5 million) which is almost completed; the Morondava Irrigation and Rural Development Project (US$15.3 million); the Village Livestock and Rural Development Project (US$9.6 million); and the Mangoky Agricultural Development Project (US$12.0 million). An agricultural credit project was approved by the Board in September 1980. Several other projects are under preparation in the irrigation and crop production subsectors. A technical assistance project for the development of the Plain of Antananarivo, a livestock project and a project to strengthen accounting and auditing services in Madagascar have been appraised. In the past, problems have arisen in the course of execution of several projects. There were delays in execu- tion, cost overruns and deficiencies in management and institution building. The Morondava irrigation project signed in 1973 had to be substantially reduced, and the Government has prepared a plan of action to deal with the remaining problems. The main aspects of this plan include a redefinition of \~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ - 2 - the implementing agency's (SODEMO) responsibilities and financial structure, completion and audit of overdue accounts, and preparation of an investment program and budget for the development of the Morondava area. Implementation of the plan of action has started and is being closely monitored by the Government and the Association. The Village Livestock project signed in 1974 has improved substantially, although the disbursements remain slow. On the other hand, the Mangoro Forstry project is ahead of schedule, and co0t esti- mates are in line with forecasts. In the agriculture sector, two projects of our program in Madagascar have been completed and audited by the Operations Evaluation Department. The audit report No. 1622 of December 17, 1976 on the Lac Alaotra project concluded that the project was generally quite successful. However, the performance of Somalac, the project implementation agency, has deteriorated considerably since the completion fo the project. An Impact Ealuation Report is being prepared, and a project for rehabilitation and reinforcement of agriculture and extension services in the Lake Alaotra area is under preparation. The audit report No. 1559 of April 11, 1977 on the Beef Cattle Development Project concluded that the Project ahd contributed little to Madagascar. However, the lessons from the implementationof these two projects are not directly applicable to the proposed Forestry Project. 1.04 Infrastructure. Five projects are under implementation and progress is overall satisfactory: the Fourth Highway Project (US$22.0 million) which is almost completed, the Fifth Highway Project (US$24.0 million), the Andekaleka Hydroelectric Project (US$43.0 million), the Second Railway Project (US$13.0 million) and the Antananarivo Water and Sanitation Project (US$20.5 million). The first three highway projects have been completed. The audit report No. 2143 of July 27, 1978 concluded that the Madagascar Third Highway Project was well justified and had a good rate of return despite the substantial cost overrun experienced by the project. The audit confirmed that training of local staff and adequate provision of Government funds were essential factors for a successful road mmaintenance program. Report No. 2299 of December 22, 1978 concluded that the physical objectives of the Tamatave Port Project were satisfactorily achieved, but pointed out that the institutional objective was not accomplished during project implementation because of inadequacies in the staffing of the port authority. With the exception of the Port Project, the technical assistance components of all four projects were executed satis- factorily, and made a significant contribution to institution-building. 1.05 Industry. IDA is supporting Madagascar's industrial sector by providing Madagascar's Industrial Development Bank (BNI) with funds to finance small and medium-scale projects (BNI Project, approved in May 1980, US$5.0 million). IFC made a loan for the rehabilitation and expansion of a textile mill (Loan US$11.0 million, equity US$290,000). B. The Agricultural Sector 1.06 About 85% of Madagascar's roughly 9 million inhabitants live in rural areas. Agriculture dominates the economy, contributing about 40% of GDP, accounting for about 80% of export earnings, and directly supporting - 3 - over 80% of the population. Madagascar's agricultural sector is diverse. The rural economy varies among several different geographic regions, producing a wide range of crops and agricultural produce. A variety of production systems is employed, ranging from some large-scale mechanized agriculture to the small-scale traditional farming. This diversity has, to some extent, protected Madagascar against the fluctuations of international commodity prices and adverse climatic conditions (drought and cyclones are ever-present hazards). It also contributes to wide disparities in wealth and level of development among geographic regions. In many areas, the standard of living is close to subsistence level, while in others the population is relatively prosperous. Owing mainly to different ecological and social conditions, the central highlands and particularly the area around Antananarivo are generally more developed and prosperous than the coastal areas, while the south is particularly poor. 1.07 The growth of Madagascar's agricultural production over the past ten years has been slow, with the average rate of increase somewhat less than the population growth rate of 2.8% a year. This performance largely reflects the low growth rate of rice production and the stagnation of livestock produc- tion. During this period, production of some crops increased significantly, notably coffee, although production levels in general have been stagnating over the last few years. The potential for agricultural development in Madagascar is considerable. Many commodities now being produced offer scope for expansion, while intensification of production in virtually all parts of Madagascar could significantly increase output. Large areas of undeveloped yet fertile land which can be brought into production are still available. In many cases, as a result of research and trials, the technical base for expansion or intensification already exists. In other areas, notably rice production, promising high-yielding new varieties could be introduced based on the results of applied research. 1.08 Madagascar's long-term goals for agriculture are: (a) attainment of self-sufficiency in food and development of basic industries, largely supplied by the agricultural sector; and (b) increasing production of export crops (mainly coffee). However, Government recognizes that employment possibilities in agriculture will increase slowly, and considers that industrialization is the only feasible long-term solution for the problem of unemployment. Govern- ment therefore accords high priority to manufacturing, particularly basic industries and processing of agricultural raw materials. C. The Industrial Sector 1.09 Industry (including agro-industry) and mining contribute about 20% of GDP, and account for about 10% of export earnings. The major industrial activities are food industries, textiles and petroleum refining, and mining of chromite and graphite. Industry is mainly concentrated in Antananarivo and Toamasina, due largely to transport problems. 1.10 The development of the industrial sector after Independence in 1960 was encouraged by varlous measures, and value added by industry increased at 6% per annum in real terms from 1966 to 1971. Industrial growth since 1972 - 4 - has been erratic. After a marked rise in 1974, industrial production declined and, despite a subsequent recovery, is not expected to exceed the 1974 level by 1980. 1.11 According to Madagascar's Development Plan, Madagascar's broad objectives for development of industry fall into three distinct phases. During the first phase, emphasis would be on infrastructure, basic industry, food processing and textiles, with little or no improvement in per capita consumption levels. The second phase (1985-92) would be a period of consolida- tion with the beginning of a capital goods industry, expansion and diversifica- tion in other areas, declining unemployment and some increase in per capita consumption. The final phase (1993-2000) is projected as one of growth and expansion, ensuring all round industrial development, full employment and rising living standards. The achievements expected from this long-term strategy, however, might be optimistic, because of constraints in mobilizing domestic and external resources. The proposed plantation Project and its objective of establishing a silvo-industrial complex in the Mangoro Valley are in line with Government's long-term strategy. The resources constraints mentioned above would be taken into account in designing the Mangoro silvo- industrial complex. D. The Institutional Environment General 1.12 Five institutions are mainly involved with the Mangoro afforestation program and the creation of the Mangoro silvo-industrial complex: (i) the Ministry of Finance and Planning (MFP); (ii) the Ministry of Rural Development and Agrarian Reform (MDRRA); (iii) the Ministry of Economy and Commerce (MEC); (iv) the Central Bank (BCRM); and (v) FANALAMANGA (the Project entity). MDRRA and FANALAMANGA have a direct role in implementing the afforestation program, while the other institutions are concerned with the planning, financial and economic aspects of the silvo-industrial complex. The Secretary General of MDRRA has been appointed as coordinator of all the activities related to the planning and implementation of the silvo-industrial complex. Agriculture 1.13 The Ministry of Rural Development and Agrarian Reform (MDRRA) is the central institution dealing with the agricultural sector. It is concerned with extension services, plant protection, veterinary services, irrigation systems, fisheries and forestry. It also deals with agricultural planning, the control of semi-autonomous regional authorities and parastatal agencies, and land reform. In addition to the Ministry's basic services and depart- ments, several regional and parastatal agencies provide extension services to farmers. Though they are part of the Ministry, they tend to function autono- mously. About 30 parastatal agencies operate under the aegis of the Ministry, including FANALAMANGA, the implementing agency of the Mangoro afforestation program. - 5 - 1.14 Up to 1979, the Ministry had four major operating departments, which functioned quite autonomously and were organized separately at the regional level. In 1979, a far-reaching reorganization of the MDRRA was introduced, with the object of providing better support to the rural community through decentralization. At the central level, only two departments remain: the Department of Studies and Planning, responsible for general planning and project preparation, and the Department of Rural Development which regroups former operating departments and the Department of Agrarian Reform. Within the new Department of Rural Development, the following seven services have responsibility for defining general policies: (i) Agricultural Production and Extension; (ii) Livestock Production; (iii) Agrarian Reform and Coopera- tives; (iv) Waters and Forests; (v) Irrigation; (vi) Agricultural Industries; and (vii) Agricultural Equipment. The first stage of the decentralization process involves increased responsibilities for the local services of MDRRA at the provincial (faritany) level; the Director of the Provincial Service now has full authority over the operating services of MDRRA. Budgetary procedures are being decentralized to the local level. Operating services will eventually be completely decentralized to the district (fivondrona) :Level, in order to use MDRRA staff to support village (fokonolona) institu- tions, state farms, and cooperatives more effectively. The reorganization of MDRRA began centrally in mid-1979 and is now progressing to the provincial level. The present organization of the MDRRA is shown in Chart 1. Agricultural Research and Training :l.15 Before 1972 agricultural research was carried out by several semi- autonomous agencies, most of them managed by external (largely French) insti- tutions. All research now comes under the Ministry of Higher Education and Scientific Research, and the research institutes have been merged under a single organization, FOFIFA/CENRADERU. This is a semi-autonomous body respon- sible for all agricultural research, including socioeconomic studies. It carries out research in many fields, including forestry, some with direct support from the Government budget, others on a contractual basis. FOFIFA is over-burdened with the wide range of responsibilities and activities it has iLnherited, and suffers from a severe lack of qualified staff and funds, as well as from inadequate contacts with international research organizations. The training of agricultural staff to the secondary level is the responsi- bility of the MDRRA, which is considering plans for the rapid expansion of facilities ranging from farmer centers to agricultural secondary schools ("lycees agricoles"). The Ministry of Higher Education and Scientific Research is responsible for university level training and, there also, expan- sion programs are being considered. In certain specialized fields, such as veterinary science, training takes place abroad. FANALAMANGA 1.16 FANALAMANGA was established to carry out the Mangoro Forestry Project (Loan 1065-MAG, Credit 565-MAG) and the subsequent forestry and -6- silvo-industrial developments in the Mangoro Valley. FANALAMANGA would imple- ment the proposed Project and is described in detail at paras. 5.22 to 5.26. Socialist Enterprises 1.17 An important development in the institutional field is the emergence of socialist enterprises. According to the Charter of the Socialist Revolu- tion of 1975, one of the Government's objectives is to control the principal means of production, including the nationalization of all mineral wealth. The Charter of Socialist Enterprises of May 1978 allows the State to determine the overall direction of the economy by means of the enterprises and corpora- tions it controls, while granting sufficient autonomy for efficient manage- ment. Socialist enterprises are defined as those of strategic importance in which the State owns or controls, directly or through the holdings of other State enterprises, 51% or more of the shares. Each enterprise is managed by a committee composed of representatives of the State, of local institutions (when appropriate), workers' representatives, and financial partners, such as private investors and foreign firms. The managing director is nominated by the Prime Minister on the advice of the Managing Committee. 1.18 Few socialist enterprises have been established so far, and then only very recently. It is therefore premature to try to assess their effi- ciency. The impact of a possible change in FANALAMANGA's management structure Is further discussed in para. 5.26. II. THE FORESTRY AND WOOD INDUSTRIES SUB-SECTORS A. Government Forest Services Structure 2.01 Until 1979, overall responsibility for forest organization and management rested with the Directorate of Waters and Forests (Direction des Eaux et Forets, DEF) in the Ministry of Rural Development and Agrarian Reform (MDRRA). DEF enjoyed a large measure of autonomy and was responsible for formulating forest policy, administering the State forests, and implement- ing large-scale plantation programs. It was also responsible for national parks and wildlife protection, inland fisheries and soil conservation. 2.02 In 1979 the MDRRA was reorganized with the principal objective of providing better support to the regional and local institutions through decentralization (para. 1.14). Responsibilities for inland fisheries and for forest industries have been transferred to the Livestock Production and the Agricultural Industries' services, respectively. The Waters and Forests service has no direct control of the regional forestry services, except for "national projects" which are financed with external assistance. Regional operations, whiceh are under the direct responsibility of the regional forestry services, include village forestry and soil conservation. -7- Staffing 2.03 Out of a total forestry staff of approximately 500, there are 20 professionally qualified foresters (Ingenieurs des Eaux et Forets), of whom only four are at the central forestry service and eight are not performing forestry functions, 46 forestry technicians (Ingenieurs des Travaux), many of whom are not performing forestry functions, about 440 forestry assistants (Adjoints Techniques et Agents Techniques) and 30 foremen. Forestry training has been inadequate during the past few years, and there have been no new post graduate level foresters since 1972. However, at the forestry senior technician level there were 10 graduates in 1978, 6 in 1979 and 15 in 1980, all coming out of ESSA, the "Ecole Superieure des Sciences Agronomiques," which is part of the University. This output is adequate. At the forestry assistant level there is no longer a full purely forestry training, but a general 2-year agricultural training at one of the 6 agricultural colleges, followed by six months of intensive forestry training at the agricultural college of Ambatobe. With effect from 1980 an agricultural diploma (baccalaureat) course will be available. So far promotion to the rank of forestry assistant has been by means of a competitive examination, but henceforth a one year "second cycle" course is available at the agricultural college of Ambatobe to train forestry assistants. These changes should ensure an adequate supply of trained for- esters at lower levels. It is however too early to assess the efficiency of this new system. Research 2.04 Since 1972, all research, including forestry research, has been tLnder the Ministry of Higher Education and Scientific Research and the research institutes have been regrouped under one organization, FOFIFA (para. 1.15). Little research in the forestry sector is carried out at present, and has been mainly concentrated on trials carried out under contract in the context of the first phase Mangoro afforestation project (para. 5.17). Budget 2.05 In the 1980 investment budget forest operations account for about FMG 480 million (16% of MDRRA total). These figures do not include the amounts of foreign assistance on small specific projects. The Mangoro project alone has represented more than 44% of total Government investment commitments in the forestry sector over recent years. From 1980 onwards, since the Directorate of Waters and Forests no longer exists, it will be difficult to estimate what part of the recurrent budget of MDRRA corresponds to forestry related activi- ties. In 1979 total recurrent expenditure of the Directorate of Waters and Forests amounted to FMG 866 million (US$4.3 million), of which FMG 671 million (US$3.4 million) or 77% was for staff salaries. Some expenses financed under the recurrent budget appear to correspond to investment operations, but their aggregate amount is small. - 8 - B. Forest Resources 2.06 About 17.0 million ha (30% of the total land area) within Madagascar is classified as forest land, of which about 4.0 million ha has been demarcated as State forests. It is estimated that 12.4 million ha represent so-called "productive" indigenous forests and about 300,000 ha, pine and eucalyptus plantations. Over 4.0 million ha of the total potentially productive area is degraded to such an extent that it has no effective productive function, and the balance is stocked with a wide variety of hardwood species, most of which are not commercially exploitable. 2.07 The breakdown of the forest areas can be suxmmarized as follows: Forest land '000 ha State forests, non-demarcated 7,800 State forests, demarcated 2,700 Nature reserves and national parks 700 Classified reserves 800 Area for afforestation and soil conservation 400 Area planted to pines 100 Area planted to eucalyptus 200 Degraded forests ("savoka") 4,300 TOTAL 17,000 2.08 The low standing volumes, the preponderance of non-marketable species and the inaccessibility of most indigenous forests limit their eco- nomic value. Nevertheless, the natural forests serve an important function in providing domestic fuel and timber and maintaining water catchments. 2.09 The man-made forests in Madagascar are mainly pine and eucalyptus plantations. As land clearing and plantation costs are high in natural forest areas, plantations have been carried out in open grassland areas. The existing eucalyptus plantations have been established for fuelwood, originally mainly for railway use. There are about 200,000 ha of eucalyptus, mostly in small stands, often on private land, and managed under a coppice system, providing mainly fuelwood (including charcoal) and poles. A continuation of eucalyptus plantation on a large scale would be justified only as raw material for industrial uses such as pulp and paper or chromite reduction. High-yielding eucalyptus plantations have been successfully established, particularly E. grandis in the Moramanga - Perinet area, but these require good soils, preferably forest soils, for their best development. -9- 2.10 Climatic conditions in Madagascar favor the establishment of pine plantations, to which the Government gives high priority in order to utilize land with low agricultural potential. The availability of such land in large blocks relatively close to the sea gives Madagascar a comparative advantage for the industrial production of wood-based products for export. By 1980 over 100,000 ha of commercial pine plantations, some of them poorly stocked or failed, had been established: over 60,000 ha in the Mangoro area, over 30,000 ha in the Matsiatra area, and about 10,000 ha in the Antsirabe area. 2.11 Pine plantations ge erally produce a mean annual increment (MAI), under bark (u.b.), of 12-15 m /ha, while most of the eucalyBtus plantations (mostly E. robusta) do not produce an MAI of moïe than 10 m /ha. However, on good sites pine may have a MAI of up to 20 m /ha (or sometimes eNen more) u.b., while E. grandig frequently produces an MAI of well over 25 m /ha (some- times even up to 50 m /ha). Taking into account the low productivity of the natural forests and their general remoteness and inaccessibility, it is clear that the future of forestry in Madagascar lies mostly in man-made forests. C. Wood Uses General 2.12 Information on wood uses in Madagascar is scanty, mainly because the bulk of wood consumption is in the form of firewood and charcoal at the village level, for which no reliable data exist. A survey on energy consumption (wood, charcoal, gas, petroleum products, electricity) of urban dwellers in Antananarivo has been conducted by the former Directorate of Waters and Forests; this study would be a significant step forward in the evaluation of wood and charcoal consumption in major cities, but the data collected have not yet been fully analysed. 2.13 It is esti3mated that the total annual wood consumption in Madagascar is abojt 7 million m (roundwood), which gives an average consumption of 0.75 m per head p.a.3 Fuelwood (including charcoal) represents almost 80% of this amount, or 0.6 ! per head p.a. Industrial wood represents about 20% of the total, or 0.15 m per head p.a. Officially the volume of mechan cally sawn wood has been going steadily down and is now probabày about 20,000 m p.a., but pit-sawing may still acount for about 150,000 m p.a. Small volumes of wood are also used for the production of pulp, hardboard, and matches. 2.14 Imports and exports of wood and wood-derived products have declined considerably over the last few years and are now negligible. Exports of pre- cious woods, such as Rosewood (Dalbergia spp.) have virtually stopped because of Government regulations to conserve the species. Imports are now limited to small quantities of pulp and paper products. - 10 - Firewood and Charcoal 2.15 Firewood is used mainly in rural areas, where it is generally avail- able free of charge. It is estimated that half of urban dwellers also use firewood, but because of high transport costs, this proportion is probably decreasing in favor of charcoal. 2.16 Charcoal is widely used in urban areas, where it has been estimated that half of the population consumes some 60 kg of charcoal per person p.a. This would represent a total anngal consumption of about 60,000 t of charcoal equivalent to almost 1 million m of fuelwood, or approximately 20% of the total fuelwood consumed annually. Most of the charcoal is produced and consumed in the highlands, where the main tree species is Eucalyptus robusta. Government intends to review the firewood and charcoal situation in Madagascar (para. 2.12) with UNDP/FAO assistance in order to define policies and prepare a program of action to increase firewood and charcoal production while preserv- ing natural wood resources. Sawnwood 2.17 Most of the timber produced and consumed so far is converted manu- ally in the forest, either by squaring with an axe (not an adze) or by pit- sawing, which is extremely wasteful and produces squares and boards of uneven quality, but saves on extraction and transport costs; in many cases, it is the only practical way of exploiting the forest in inaccessible and mountainous areas. 2.18 There are approximately 20 sawmills in Madagascar, most of which carry out their own logging operations. Their equipment is §enerally anti- quated and their average production very low (around 1,000 m p.a.). The total production of sawn lumber has3gone down dramatically over the past 10 years and is now around 20,000 m p.a. Demand is high and cannot be met, though most mills are operating at less than 40% of their rated capacity, for a variety of reasons: poor management, lack of trained staff, poor main- tenance, lack of spare parts, logging and transport problems. One unit, how- ever, HAZOVATO, Sn the capital, is planning to increase its productive capacity to over 10,000 m p.a. The main species sawn are Pine (mostly Pinus patula) and Eucalyptus (various species, but3mainly E. robusta), for which the selling price is about FMG 30,000 (US$150)/m Pulp and Paper 2.19 The production of paper for the local market is carried out by a mixed-capital company, PAPMAD (Papeteries de Madagascar), located in Antananarivo. PAPMAD supplies the entire local market, imports about 10,000 t annually of chemical pulp and produces about 5,000 t of mechanical pulp from local Pine wood (16,000 steres or 11,000 m ) and 3,000 t of semi-mechanical pulp from local Eucalyptus wood (7,000 t). Its productive capacity is now being increased to 19,000 t of paper, including newsprint. PAPMAD manufac- tures 115 different lines of paper products. - il - Other Wood-derived Products 2.20 PANOMAD, a company located in Moramanga, produces about 1,200 t p.a. of hardboard out of eucalyptus wood. Other small wood-processing indus- tries include a small match factory (SNA) at Moramanga (50-60 million boxes p.a.) and a small plywood factory at Antananarivo. D. Projects in the Forestry Subsector 2.21 The first-phase Mangoro Forestry Project provided for the planting of a further 35,000 ha of pine (in addition to 25,000 ha previously planted) over a five-year period (1975-79), estimated to cost FMG 4,400 million, with an IDA credit and a Bank loan of US$6.75 million each. In fact the planting target has been exceeded and the project period extended, without cost overrun. The project entity, FANALAMANGA, has achieved a remarkable record of competence and efficiency. The first-phase project is described in Chapter IV, and the proposed second phase plantation project is described in Chapter V. Matsiatra 2.22 Over the past 10 years or so, the Government has been investigating the possibility of using the potential of the Matsiatra pine plantations near Fianarantsoa, which total over 30,000 ha. Current plans include the creation of an unbleached kraft pulpmill, a laminated wood mill with an intake capacity of 15,000 m roundwood per year and a sawmill with an intake capacity of 12,000 m roundwood per year. Plans for the pulpmill and the laminated wood mill are still vague, because of their doubtful economic viability but French bilateral aid is financing the sawmill under a technical assistance and training program through a newly-created Forestry Training Center at a total estimated cost of FMG 700 million (about US$3.5 million). Morondava 2.23 Another Forestry Training Center was created in 1979 in Morondava with the object of training pe sonnel and producing, processing and marketing products obtained from 2,000 m roundwood per year from a 10,000 ha hardwood natural forest. The project is financed by Swiss bilateral aid. Chromite Project 2.24 The Government has been investigating the possibility of treating the chromite ore north of the Moramanga area locally. The treatment'of 100,000 t of chromite per year would require 50,000 t of charcoal per year. Ihe project includes the planting of 20,000 ha of eucalyptus and the building of roads at Mahela, near Brickaville. Plantation activities are due to start in 1980 with infrastructure works and the planting of 600 ha and to be com- pleted in 1986. The total cost is estimated at FMG 2,600 million (about US$13 - 12 - million). However, there are significant uncertainties regarding the viability of the overall chromite project and the construction of a chromite treatment plant might ultimately not materialize. Other Projects 2.25 The Savoka project aims at improving the use and protection of secondary natural forests ("savoka") at the village level, on an experimental basis at first. Four villages in the faritanys of Antsiranana, Toamasina, and Fianarantsoa have been selected for a 5-year pilot project (1980-84). A UNDP grant of US$1 million has been secured for this purpose. 2.26 A cinchona project has been under way since 1973 in the Anjozorobe area with a target of 700 ha and a possible extension to 2,500 ha. Other forestry projects considered by MDRRA include the production of veneers from valuable timber species, the production of transmission poles for the electric company, JIRAMA, the planting of rubber trees (Hevea brasiliensis), and the production of cashew nuts in the Mahajunga area. III. THE PROJECT AREA Location, Climate and Land Features 3.01 Project activities would be carried out in the Mangoro Valley, some 75 km east of Antananarivo, on a gross area of about 300,000 ha, with the approximate shape of a rectangle, about 150 km long (north-south) and 20 to 30 km wide (see MAP). The rainfall varies between 1,600 mm in the south and 1,100 mm in the north. The main rainy season is from December to March, but during the winter months (June - August) there are frequent light drizzles, mist and dew. The average temperature is about 200C, with minima of 10 C and maxima of 30 C. It does not usually freeze; hail occurs occasionally, but is not a problem. The land is generally flat to gently undulating in the south, but gets more broken up in the north. The altitude varies between 900 m and 1,200 m. The area consists of numerous hills and more or less broad valleys, with marshy valley bottoms and flat tops; the slopes are severely eroded and sterile. Soils are generally ferralitic and poor, but adequate for pine planting, particularly on flat sites. Water Resources 3.02 The main river - the Mangoro - flows north to south across the Project area, and has numerous tributaries. The water flow in the Mangoro has been observed since 1956 at the village gf Mangoro, in the south of the Project îrea; it has an average flow of 85 m /sec. The lowest recorded flow was 21 m /sec (in 1968), which is adequate to meet the water requirements of a large pulpmill and to allow for effluent disposal, provided the mill is equipped with appropriate effluent treatment facilities. However, further hydrological and water quality measurements are necessary at various points - 13- of the Mangoro and of some of its tributaries to identify the most suitable industrial site in relation to the wood resources and to select the type and size of water treament facilities. FANALAMANGA, with the assistance of Government's Department of Hydrology, started taking such measurements in mid-1980. Land Use and Population :3.03 Out of the gross Project area of 300,000 ha, about 25,000 ha were planted between 1969 and 1974 under Government financing and 40,000 ha between :1975 and 1980 during the Phase I Project. A further area of about 18,500 ha would be planted over three years under the proposed Phase II Project. The land which would be planted under the Project is currently unoccupied and unencumbered by land claims, and is considered Government land according to Malagasy law. The vegetation consists mostly of grass, but there are exten- sive areas of heath land in the northern part and a few scraps of forest galleries along streams. Most of the land is unsuitable for agricultural production other than extensive poor-quality grazing. 3.04 There are now about 11,000 people living in 50 small villages scattered within the Project area; these villages are, however, outside the areas identified for afforestation under the Project. The villagers are mainly subsistence farmers with an average of one to two hectares of cultiva- ble land in valley bottoms, rice being the main crop. It is estimated that there are currently 8,000 head of cattle in the area. Large grazing areas have been set aside for cattle, and pastures have been improved in selected locations under the Phase I Project; improvement of pastures would continue under the proposed Project. There is a possibility that some marginal grazing areas could be affected by the afforestation program, and should this happen, the owners of the land would be compensated by Government in accordance with Malagasy law. It is expected, however, that any interference with local land use patterns as a result of the Project would continue to be minimal. Experi- ence during the first phase project has shown that the improvement of pastures and the provision of roads and services help to minimize conflicts with cattle owners in the area. In addition to the above population, about 1,600 forest workers' families have settled in the Project area. Access to the Project Area 3.05 Roads and tracks in the plantation area are built and maintained by FANALAMANGA and are in good condition. The Project area is connected to the port of Toamasina by road (250 km) and rail (270 km). The Moramanga- Toamasina road goes through difficult terrain and is in very poor condition. It is being reconstructed with the assistance of the People's Republic of China and the works are expected to be completed in about 1985. The railway borders on the Project area for about 150 km between Moramanga and Ambatondrazaka and connects with the Antananarivo - Moramanga - Toamasina line. Repairs of the railtrack and provision of rolling stock are being financed by IDA (Second Railway Project, Credit 903-MAG) and the French Caisse Centrale de Cooperation Economique. The size of the equipment which can be carried by rail is limited by the cross-section of bridges and tunnels (3.60m x 3.22m). - 14 - Ports 3.06 The port of Toamasina is capable of handling the equipment which would be necessary to establish a silvo-industrial complex, and the production of such a complex (paper, pulp or wood products). However, arrangements for storage may prove difficult, in particular if export of wood chips is contem- plated. This question will be examined in detail as part of the studies to be carried out under the Project (para. 5.28). Although it is much more distant from the Project area than Toamasina and has few handling facilities, the port of Mahajunga might be considered for the delivery of especially large pieces of equipment which might not be transportable by the Toamasina-Moramanga railway. Power Supply 3.07 Electrical power is available at Moramanga through an Interconnected System around Antananarivo, operated by JIRAMA, the national power supply company. JIRAMA is currently increasing the capacity of the Interconnected System, with the financial assistance of IDA (Credit 817-MAG) and of six other external financing agencies. Under this expansion program, the Inter- connected System would have an installed capacity of 107 MW by 1982. Govern- ment is considering a number of projects which would draw power from the Interconnected System. In the event that several of these projects were to materialize (chromite treatment plant, 42 MW; steelmill, 41MW; pulpmill, 20MW; supply of Antananarivo, 70MW; small industrial projects, llMW), the increased generating capacity would be insufficient, and either some additional thermal power would have to be produced for industrial use on site or else new hydro- electric facilities would have to be built. The constraints in power supply would be taken into account in planning for the silvo-industrial development of the Mangoro Valley. IV. THE MANGORO FORESTRY PROJECT A. Project Origin and Preparation 4.01 In 1967 a Bank/FAO-CP mission visited Madagascar to identify forestry projects which might be financed by the Bank. Following the mission's recom- mendation, Government established over 18,000 ha of experimental plantations in the Mangoro area between 1969 and 1973, with some assistance for research from an FAO/UNDP forestry project and the French forest research organization CTFT. In 1972 Government asked the Bank to assist in financing the continua- tion of the afforestation program. A Bank/FAO-CP mission helped Government draft the project preparation report in early 1973, and the project was appraised by the Bank/IDA in late 1973. - 15 - B. Summary Project Description 4.02 The project provided for the planting of 35,000 ha of pine planta- tions over the period 1974-1979 (in addition to the 25,000 ha which had been planted by 1974), and for the development of forest services within the Project area. The project was part of the Government-s afforestation program which would ultimately reach about 100,000 ha with the objective of establish- ing a pulp industry in Moramanga by 1985. The project cost was estimated at US$17.2 million equivalent, of which 26% in foreign exchange, and was financed by the Bank/IDA (US$13.5 million) and Government (US$3.7 million). The economic rate of return was estimated at 13%, based on the cost and benefits of the entire afforestation program including the construction and operation of a bleached sulphate pulp mill with a capacity of 200,000 tons of pulp per annum. C. Project Implementation and Results 4.03 The project became effective in August 1975 and, after a slow start-up due to delays in the procurement of equipment and spare parts, progressed very satisfactorily. The project's planting and most other targets were reached in mid-1979, and sufficient funds are likely to be available under the loan and from Government funds to continue the afforesta- tion program until about mid-1981. By mid 1980 over 41,000 ha had been planted under the first phase project, thus exceeding the appraisal estimate of 35,000 ha by nearly 20%, without cost overruns. A summary of the physical achievements during the first phase project is given in Table 9. 4.04 The only major problem which arose during project implementation was the dieback of Pinus kesiya when the stands reached the age of three or four years. This was first reported in mid-1975. Following intensive research by FANALAMANGA and CENRADERU (para. 1.15), in late 1977 it was clearly estab- lished that the cause of the dieback was a soil deficiency in zinc and that trees were responsive to treatment. The dieback problem is being brought under control by aerial spraying of zinc compounds. However, in late 1980, it appeared that large areas of the plantation showed yellowing of the leaves, usually a sign of stress, making the trees more susceptible to disease. The cause of the stress has not yet been identified but it is probably due to a deficit in nutrients. An expert to assist Fanalamanga to identify the remedy to this problem is expected to visit the project area shortly. D. Planning for Silvo-industrial Development 4.05 It was estimated at appraisal that the most suitable and the most likely use of the Mangoro forest resources would be to establish a 200,000 TPA pulpmill. The project therefore did not provide for further study of various silvo-industrial development alternatives; the appraisal report, how- ever, noted that flexibility as to the type of pulp and paper products to be manufactured would be retained until the beginning of the second phase of the plantation program. - 16 - 4.06 In 1977, UNDP approved the financing of a pre-feasibility study for a pulpmill, which was carried out by the FAO under the aegis of UNIDO, and completed in 1979. Its main conclusion was that investing in a bleached sulphate pulpmill would be an economically and financially viable proposition, provided that the pulpmill capacity was ralsed to 270,000 TPA. However, the pre-feasibility study did not develop alternatives for the utilization of the plantation resources, and therefore did not provide all the technical and economic information required for designing an optimal industrial development program. Analysing various industrial development scenarios corresponding to a wide range of investment levels is particularly important in view of the large investments that some of the programs would require (over US$500 million in 1981 prices for a 270,000 TPA pulpmill) and of the economic and financial constraints the Government is currently facing and might continue to face in the coming years. Various studies, including the assessment of the alterna- tive uses for the wood produced in the Mangoro plantations, would therefore be carried out during the proposed Project (paras. 5.28 to 5.33). V. THE PROJECT A. Project Objective 5.01 The objective of the proposed Project would be to continue assisting Government's efforts to establish a silvo-industrial complex in the Mangoro Valley, thus developing land and resources which would not otherwise be econo- mically utilized. As indicated earlier (para. 4.06), the industrial invest- ment plans for the utilization of the wood produced by the Mangoro plantations would be finalized during the proposed Project. Although the ultimate size of the complete plantation program is not yet determined, continuing the planta- tion program until industrial development studies are completed would be a viable investment (para. 8.07). On the other hand, the interruption of the plantation program until industrial development planning is completed would not bring any advantages but would seriously disrupt the Project entity and might jeopardize the success of the entire program. To continue the planta- tion program is therefore the best strategy to preserve the viability of the investments made until now in the program, and to complete planning for the development of the Mangoro forest resources. The proposed Project would continue the current plantation program, albeit at a reduced rate, (i) to allow time for industrial development planning studies and (ii) to consolidate the institution-building achievements of the first project by maintaining FANALAMANGA's activities at a reasonable level. B. General Description 5.02 The proposed Project would be implemented over a three year period (1981/82-1983(84) and would include the following components: - 17 - (i) the maintenance and protection of the existing plantations (about 70,000 ha) and the maintenance of roads, buildings and infrastructure in the Project area; (ii) the establishment, maintenance and protection of about 18,000 ha of pine and 500 ha of eucalyptus plantations; (iii) the construction and maintenance of roads and buildings; (iv) pasture improvement; (v) research and training; and (vi) studies for industrial development planning, and preparation of projects in the forestry and agriculture sector. The Project would be implemented by FANALAMANGA (para. 1.16), a Government- owned company whose performance under the first phase project has been very satisfactory. 5.03 During the Project implementation period, studies would be carried out to assess the alternative uses of the wood produced in the Mangoro plantations and, once a specific alternative has been selected, detailed studies would be undertaken of its technical, financial and economic feasi- bility. Financing of these studies is provided by UNDP, with FAO as the executing agency. Details of these studies are given in paras. 5.28 to 5.33. C. Detailed Features Plantation Maintenance and Protection 5.04 Maintenance and protection of all existing plantations would continue under the Project. Maintenance would include: (i) the pruning of all Pine trees up to a height of 2 m when the trees reach an average height of 5-6 m (5-6 years), mainly as a fire-protection measure; about 21,000 ha would fall in this category during the Project implementation period and 7,000 ha of trees would be pruned each year; (ii) controlled burning (where possible and desirable), particularly in the case of P. kesiya; (iii) sanitary control of all plantations; and (iv) treatment with trace-elements and/or fertilizers. - 18 - 5.05 During the past ten years, on average less than 1% of the planted area has been destroyed by fire annually, which is not unusual for this type of plantation. Valleys, natural forest galleries and roade are used as firebreaks, and are supplemented by a network of external and internal fire- breaks which are left unplanted, cleared annually in winter (July-August) and, if possible, control-burnt early during the dry season which extends from September to December. The Project area is divided into fire-fighting units, each of which controls approximately 10,000 ha and is well-equipped with manned fire towers, fire-fighting vehicles, cisterns, tools, water points, radios and fire-fighting teams. The total existing fire-break network of about 800 km would continue to be maintained, and 150 km of additional fire-breaks for the new plantations would be constructed and maintained under the Project. Six additional fire towers would be constructed at intervals of 10-20 km in the new plantations, thus bringing the total number of fire towers in the Project area to 12, or about one tower for 7-8,000 ha. Provision would also be made for vehicles, fire-fighting tools and equipment. Afforestation 5.06 Provision would be made for the afforestation of 18,500 ha over the Project period; about 6,000 ha of pine would be planted in each of the three years, and a total of 500 ha of eucalyptus on degraded forest sites in the south of the Project area as large-scale trials. The afforestation program would include surveying of the areas to be planted, the establishment of nurseries, soil preparation, fertilization, planting, weeding and disease control. 5.07 Surveys. The general demarcation of the Project area and soil and topographical surveys were done before and during the first phase project. Detailed advance surveys would determine more precisely the areas to be planted year by year, gather accurate information on the soil preparation methods to be adopted, the choice of fertilizers and of species, indicate the road alignments, and demarcate the areas reserved for crops and grazing. The boundaries of the plantation would continue to be agreed upon with vil- lagers now living in the Project area, as agreed during the negotiations of the first project. 5.08 Species. At present Pinus kesiya is the dominant species planted in the Project area, and occupies about 85 percent of the plantation. During the latter part of the first phase project, P. elliottii and P. caribaea hondurensis have increasingly been planted, particularly in the north, which is too dry and unsuitable for P. kesiya. During the Project period the two latter pine species would be the principal ones planted, in the ratio of roughly 2/3 P. caribaea (particularly in the north) and 1/3 P. elliottii (mostly in the south, on less well drained and on poor sandy soils). Some P. kesiya would also be planted, but only on the most favorable and wettest sites. Eucalyptus grandis would be planted in the extreme south, mostly on secondary forest sites ("savoka"), as large-scale trials. 5.09 Nurseries. The annual planting program would require 7 semi- permanent and 3 temporary or depot nurseries, producing altogether about - 19 - 12 million Pine and 100-200,000 Eucalyptus grandis plants. Most of the Pine seed would be imported, but selected seed of P. kesiya and Eucalyptus grandis would be available locally. The pine seedlings would be duly inoculated with mycorrhiza and fertilized. Watering would be by sprinkler irrigation in the semi-permanent nurseries. About 80% of the plants would be transplanted from seed beds into earth balls, a well-proven technique in Madagascar, while about 20% would be sown directly in polythene tubes to allow for safe planting beyond the normal summer rainy season. 5.10 Soil Preparation. Most of the soil preparation would continue to be done mechanically, because this could not practically be carried out by hand on a large scale. For pine the most common method of soil preparation would consist of sub-soiling by means of a heavy double ripper, followed by spot- preparation at the spacing of 2 m 50 x 2 m 50 (1,600/ha). Some sites, par- ticularly on sandy soil, would be disc-ploughed in strips. And finally, some slopes might be pitted manually (less than 10% of the total). Some heathland areas, particularly in the north, would have to be cut back by means of a roller-chopper prior to proper soil preparation. Eucalyptus would be planted mostly on "forest" sites (in the south), which would be cleared of all vegetation, preferably by charcoal burners and woodcutters, prior to pitting. Two spacings would be tried for Eucalyptus: 3 m x 3 m (1,100/ha) and 4 m x 4 m (625/ha). 5.11 Fertilization. All P. elliottii and P. kesiya plantations would be fertilized at the rate of 75g of PK 20:20 per plant (about 120-140 kg/ha). P. kesiya would also receive a starter application of zinc (10-12 kg/ha). Existing plantations which never received a starter fertilizer treatment would be given a booster dose of 260-300 g per tree. By the end of the first phase project about 25,000 ha of the P. kesiya plantations should have been treated with zinc by aerial spraying to prevent dieback. The remainder of the P. kesiya plantations (about 30,000 ha) would be treated with zinc to complete the operation. 5.12 Planting, Weeding and Disease Control. Planting would be done by hand and as far as possible would take place between December and March. The replacing of failures would mostly take place during the light winter rains (June-July). Normally failures do not exceed 10%. Weeding is not a major or costly operation in the Project area, and generally less than 20% of the plantation requires weeding, usually for only one year after planting. An inspection team would continue to make regular inspections to identify and control any unhealthy or unusual signs on growth, vigor, color of foliage, disease, nutrient or trace-element deficiency, and insect attack. Road Construction and Maintenance 5.13 There are four types of roads in the Project area: service roads and primary forest roads, which are allweather earthroads; secondary roads, of a lower standard; and forest tracks which are temporary roads opened up mostly for planting. - 20 - 5.14 Under the proposed Project, the existing road network would continue to be maintained. The network includes about 550 km of service and primary roads, 600 km of secondary roads (of which about 120 km require annual maintenance) and about 2,000 km of tracks (which require maintenance only at sporadic intervals and on specific locations, usually after heavy rains). About 60 km of new service and primary roads would be constructed and maintained, as well as 180 km of secondary roads and 360 km of tracks. Buildings and Housing 5.15 Before and during the first phase project, the Project headquarters and 10 forest villages were built (see Map), providing housing and social infrastructure (schools, stores, dispensaries, water supply) for about 1,600 plantation workers and FANALAMANGA staff families. These facilities would continue to be maintained under the Project. In addition, three new villages for a total of about 300 families would be established in the new areas to be planted under the Project. These villages would accommodate plantation workers at present living in temporary buildings in other parts of the plantation. Pasture Improvement 5.16 Pasture improvement activities started during the first phase pro- ject have contributed to the establishment of good relationships with cattle owners in the Project area by increasing the carrying capacity of the natural pastures used for communal grazing. These activities would continue under the Project; strips would be ploughed and planted with Stylosanthes and Melinis over a total area of about 450 ha. Research and Training 5.17 Research and trials have been carried out during the first phase project under contract by CENRADERU/FOFIFA (paras. 1.14 and 2.04); this arrangement is satisfactory and would continue during the proposed Project. In addition to the continuation of the ongoing program the following research and trials would be carried out for pines: (a) in silviculture: for the various species, refining of fertilizer dosages, both for main fertilizers and trace elements; weeding and maintenance problems; (b) concerning yields: rates of growth of the various species according to site classes (yield tables, volume tables, site classification); and (c) in genetics: genetic improvement of the various species (crossing, vegetative propagation, clonal orchards, seed orchards for P. caribaea and P. elliottii). - 21 - Research and trials would also be started for Eucalyptus, particularly as regards nursery techniques, genetic improvement, fertilizer trials and plantation techniques. A small section would be created within FANALAMANGA itself to carry out routine research and trials. 5.18 Apart from regular refresher courses which are needed by all the staff in order to improve their skills and outputs and to learn new techiques from trials and research, FANALAMANGA would continue to provide additional training in specific fields, particularly concerning nurseries and fire con- trol. Refresher courses and training would take place at the Project Training Center or in other appropriate centers. Specialized staff would be invited to run seminars and training sessions, and adequate equipment would be purchased for training purposes. FANALAMANGA staff would also participate in study tours and specialized courses. Studies 5.19 Various studies would be carried out during the Project implementa- tion period, (i) to gather additional information necessary for the planning of the silvo-industrial development of the Mangoro Valley, (ii) to analyze alternative scenarios for the industrial uses of the Mangoro forest resources, and (iii) to analyze in detail selected development scenarios in view of their future implementation. These studies are financed by UNDP, and are described in more detail in section F of the present chapter. 5.20 The permanent forest inventory of the Mangoro plantations would be continued and intensified. The rate of sampling would be 1%. As more informa- tion becomes available on growth yields, a forest management plan would be drawn up. Aerial photography and photointerpretation would be a necessary adjunct of this work, and are also financed by UNDP. 5.21 Funds would be included in the Credit to finance consulting services for the preparation of future projects in the forestry and agriculture sector. Assurances were received at negotiations that the qualifications and expe- rience of the consultants financed under the Project, and their terms of reference, would be subject to the prior review and approval of the Asso- ciation. D. Organization and Management 5.22 FANALAMANGA was established in 1975 as a mixed capital company with the objectives of (i) implementing the first phase Mangoro Forestry Project (Ln 1065-MAG, Cr. 525-MAG) and (ii) thereafter continuing the plantation program, establishing a forest industry and carrying out all activities re- quired for the operation and maintenance of the plantation and the processing and marketing of its products. So far almost all of FANALAMANGA-s shares (99%) are held directly by Government, the remaining 1% being held by the National Bank for Industrial Development (BNI), which is fully owned by Government. FANALAMANGA's present statutes need to be amended for the purpose of the execution of the Project. A condition of credit effectiveness would be that these statutes have been revised in a manner satisfactory to the Association. - 22 - 5.23 FANALAMANGA's organization is shown in Chart 2. FANALAMANGA reports to the Ministries of Rural Development and Agrarian Reform and of Finance and Planning. Its Board of Directors includes eleven members repre- senting all sectors of the economy, and it meets on average about twice a year. The General Manager is appointed by decree at Cabinet level and has overall responsibility for the management of all of FANALAMANGA's activities. FANALAMANGA's professional staff is competent and adequate in numbers; total staff number about 1,800 at present, of whom about 1,600 are skilled and unskilled workers. 5.24 There are at present four central departments (plantations, civil works and engineering, finance, and administration) based in FANALAMANGA's headquarters in Antsirinala, near Moramanga. A small research department would be established under the Project (para. 5.17), and later on when exploitation of the plantation begins (after 1985), a department of plantation management and exploitation would be created. The day-to-day operation of the Project would continue to be under the direct supervision of the General Manager and the Directors of the central departments. 5.25 For development purposes, the Project area is divided into three geographical departments (northern, central and southern), each responsible ultimately for about 30 to 35,000 ha of plantations, and each with its own facilities, offices, and staff responsible respectively for plantations, civil works, finance and administration, and mechanical engineering. Each of these departments is divided into two divisions, and each division is divided into two sections. On average each section will have approximately 9,000 ha of plantations at full development. 5.26 FANALAMANGA is well organized and efficiently managed, and this favorable situation is expected to continue to prevail if no adverse changes in FANALAMANGA's organization and staffing occur. In the context of the Charter of the Socialist Revolution, Government is considering the possibility of converting FANALAMANGA into a socialist enterprise (paras. 1.17 and 1.18), but has not reached a final decision on this. This could constitute a major change in FANALAMANGA's decision-making process. The impact of such a change on FANALAMANGA's efficiency cannot be foreseen at this stage. Assurances were received at negotiations that Government would inform the Association of any intended changes in FANALAMANGA's management or capital structure sufficiently in advance to give it the opportunity to comment on such changes, and that Government would cause FANALAMANGA to continue to employ a General Manager with qualifications and experience satisfactory to the Association. E. Accounts and Audit 5.27 During the first phase project, FANALAMANGA's accounts were satis- factorily kept and audited by an independent auditor designated by Government ("Commissaire aux Comptes"). Assurances were received at negotiations that FANALAMANGA would continue to (i) maintain accounts which adequately reflect its operations, resources and expenditures, (ii) keep separate accounts for the Project, (iii) have its accounts audited each year by independent auditors acceptable to the Association, such audit including a detailed review of the - 23 - statements of expenditure submitted to the Association (para 6.06) and (iv) submit its accounts to the Association no later than nine months after the close of the financial year. F. Studies Silvo-Industrial Development Study 5.28 In October 1980, UNDP approved the financing of a feasibility study of the silvo-industrial development of the Mangoro Valley; the study is a fundamental part of the proposed Project and is scheduled to be executed by FAO during the first half of the Project period. The Secretary General of MDRRA has been appointed as coordinator of all the activities related to the implementation of the study and to the planning and implementation of the silvo-industrial complex. The results of the study should enable the Govern- ment to assess the best strategy for the development of the Mangoro forest resources. The study would be carried out in three phases: Phase 1 (up to 4 months): Definition and selection of the industrial development alternatives to be studied; Phase 2 (up to 4 months): Technical and economic comparison of the options selected in Phase 1 with a recommendation on the industrial development to be studied in detail; Phase 3 (up to 8 months): Detailed studies of the technical, financial and economic feasibility of the selected industrial development. 5.29 The study would be carried out by a firm of consultants specializing in forest industries, selected according to UNDP procedures. Its progress and implementation would be periodically discussed between Government, UNDP, FAO and IDA. A firm of consultants was appointed in March 1981, with terms of reference, qualifications and experience satisfactory to the Association. Assurances were received from Governnent at credit negotiations that Govern- ment would discuss the progress and implementation of the study with the Association whenever required, in particular at the end of each of the above three phases, and that consultants with terms of reference, qualifications and experience satisfactory to the Association would continue to be employed to carry out the study. 5.30 During Phase 1 of the study, basic data would be gathered to define the various possibilities of developing the Mangoro Valley forest resources. These basic data would cover, inter alia, wood supply, markets for wood products, industrial site alternatives, and infrastructure. Based on this information and other pertinent inputs, the firm of consultants would prepare a list of alternative industrial developments which may be studied in further detail. Such industrial developments may be, for example, single mills of - 24 - various sizes, integrated developments, or time-phased combinations of developments. 5.31 During Phase 2, the alternatives selected in Phase 1 would be ana- lyzed in sufficient detail to allow Governnent to make a decision on which program should be finally selected. At the end of Phase 2, a report would be issued by the consultants presenting their analysis of each alternative and recommending for detailed study an industrial development making the optimum use of the Mangoro forest resources. 5.32 During Phase 3, the selected industrial development would be studied in detail for its implementation. This would include site selection, wood supply program, marketing plan, infrastructure studies, engineering, and financial and economic analyses. Aerial Photography and Mapping 5.33 UNDP has also approved the financing of preparatory studies neces- sary for plantation inventory and management, and for the planning of logging roads. These siudies would include (i) aerial photography of the Project area (about 4,500 km ), and (ii) mapping of the plantation area. These preparatory studies would be executed by FAO and carried out by consultants selected according to UNDP procedures. G. Environmental Impact 5.34 The Project plantation program would be of substantial benefit to the Mangoro Valley. The areas selected for afforestation are degraded, and the tree cover would reduce erosion and improve soil fertility and water retention. The boundaries of the plantation areas would continue to be drawn drawn so as to minimize land use conflicts. Assurances to this effect were received at negotiations. 5.35 The ultimate environmental impact of the Mangoro afforestation program would depend on the nature of the silvo-industrial development program which would be selected. Assurances were received at negotiations that sound environmental practices would continue to be followed under the Project, and that adequate steps would be taken by Government to minimize any adverse ecological effects resulting from silvo-industrial development. VI. PROJECT COST, FINANCING, PROCUREMENT AND DISBURSEMENTS A. Project Cost 6.01 Total Project cost is estimated at about US$ 30.2 million equivalent; the foreign exchange component is about US$ 17.3 million, or about 57%. As the goods imported under the Project would be imported free - 25 - of taxes and duties, these cost estimates include only negligible amounts of taxes corresponding to sales taxes on locally procured goods and taxes on staff salaries. The following Table is a summary of these costs, with a more detailed breakdown appearing in Table 1. F. Base Local Foreign Total Local Foreign Total Exch Cost ------(FMG million)------ ---(US$ million)-- (%) (%) Afforestation 506.6 272.8 779.4 2.5 1.4 3.9 35 17.5 Maintenance 252.2 448.4 700.6 1.3 2.2 3.5 64 15.5 Service and Plant- ation Roads 127.7 511.0 638.7 0.6 2.6 3.2 80 14.5 Buildings and Housing 272.7 116.9 389.6 1.3 0.6 1.9 30 9.0 Vehicles and Equipment 41.2 781.8 823.0 0.2 3.9 4.1 95 18.5 Pasture Improve- ment 6.6 15.3 21.9 0.03 0.07 0.1 70 0.5 Staff and Administration 538.0 80.4 618.4 2.7 0.4 3.1 13 14.0 Research and Training 68.3 7.6 75.9 0.36 0.04 0.4 10 1.5 Studies- Preparation of Projects 80.0 120.0 200.0 0.4 0.6 1.0 60 4.5 r Feasibility Studies 20.0 180.0 200.0 0.1 0.9 1.0 90 4.5 TOTAL BASE COST 1,913.3 2,534.2 4,447.5 9.5 12.7 22.2 57 100.0 Physical Contingencies 191.3 253.4 444.7 0.9 1.3 2.2 57 10.0 Price Contingencies 502.4 666.0 1,168.4 2.5 3.3 5.8 57 26.0 TOTAL COST 2,607.0 3,453.6 6,060.6 12.9 17.3 30.2 57 136.0 6.02 Project costs are calculated at prices of March 1981. A physical contingency of 10% of all Project costs has been included. In view of the experience of the first afforestation project and the strict management standards of FANALAMANGA, this level of physical contingencies is adequate. Price contingencies were calculated on a cumulative basis, at a weighted - 26 - average rate for domestic and international inflation of 12% for 1981 and 11% thereafter. All costs, except studies, are based on FANALAMANGA's experience during the first project and pro-forma invoices. The cost of the feasibility studies for the silvo-industrial development of the Mangoro forest resources was estimated on the basis of the "Project Document" established by UNDP for their financing of these studies (UNDP Project Document MAG/80/002/C/01/12). B. Financing 6.03 The sources of funds to finance the Project are summarized below: FMG Million US$ Million % IDA 4,000 20.0 66 BADEA 850 4.2 14 UNDP 180 0.9 3 Government 1,031 5.1 17 Total 6,061 30.2 100 6.04 The proposed IDA credit of US$2Q.0 million equivalent would be on standard terms to Government. UNDP is providing US$900,000 as a grant to finance the feasibility studies for silvo-industrial development (paras 5.28 to 5.33). Government's contribution and an amount equivalent to the proceeds of the IDA credit (except the proceeds used for the financing of studies to prepare projects in the agriculture and forestry sector) and of the BADEA loan would be added to FANALAMANGA's equity capital. A Subsidiary Agreement to be signed between the Government and FANALAMANGA would provide that the conversion to equity take place at a date to be agreed upon and that interest at 12 percent per annum on the funds transferred to FANALAMANGA be capitalized at the same time. Conditions of the effectiveness of the IDA credit would be that (i) a subsidiary agreement, satisfactory to the Association, between Government and FANALAMANGA, has been executed, and that (ii) the BADEA loan agreement has been executed. C. Procurement 6.05 Procurement of equipment and vehicles (US$ 5.7 million), and of fertilizers and chemicals (US$ 3.0 million) in orders exceeding US$ 120,000 would be by international competitive bidding. Out of the US$5.7 million for equipment and vehicles, about half would be financed by BADEA and procured according to its international competitive bidding procedures. A list of the main equipment and vehicles to be procured under the Project is given in Table 2. Most of the buildings and roads (US$7.0 million) would continue to be constructed by force account by FANALAMANGA, because this arrangement was successful during the first plantation project, and because local and inter- national contractors would not be interested by this type of works, because of their small size, and remote and scattered location. Some civil works, however, are expected to be carried out by private contractors following Government local competitive bidding procedures which are satisfactory. Afforestation, maintenance of the plantation, and of roads and buildings, and pasture improvement, valued at US$12.0 million equivalent (excluding the procurement of fertilizers and chemicals) would be carried out by FANALAMANGA on force account. Most of the research work (US$500,000), and the studies for - 27 - the preparation of projects (US$ 1.0 million) in the agriculture and forestry sectors would be contracted to firms and consultants whose terms of reference, qualifications, experience and terms and conditions of employment would be satisfactory to the Association (para 5.21). The firm of consultants to carry out the silvo-industrial development feasibility studies (US$ 1.0 million) was selected following UNDP procedures (para 5.29). D. Disbursements 6.06 The proceeds of the credit would be disbursed over four years on the following basis: Amount % of Allocated Expenditures (SDR million) 1/ to be Financed 1/ (:l) Civil works and 7,320,000 (US$ 9.0 m) 80% of foreign and afforestation 65% of local expend- itures (2) Administrative costs 2,440,000 (US$ 3.0 m) 80% of total expend- itures (3) Vehicles and equip- 1,630,000 (US$ 2.0 m) 100 of foreign and ment 80% of local expend- itures (4) Supply and applica- 1,630,000 (US$ 2.0 m) 100% of foreign and tion of fertilizers 80% of local expend- and chemicals itures (5) Research, training 410,000 (US$ 0.5 m) 100% of foreign and and consultant 80% of local expend- services itures (6) Consultant services 820,000 (US$ 1.0 m) 100% of foreign and for the preparation 80% of local expend- of agricultural itures projects (7) Pasture improvement 170,000 (US$ 0.2 m) 100% of foreign and 80% of local expend- itures (8) Unallocated 1,880,000 (US$ 2.3 m) Total Credit 16,300,000 (US$ 20.0 m) 1/ The BADEA Loan would be of US$4.2 m equivalent, and BADEA would jointly finance with IDA category (1) in the ratio 20% (BADEA) to 80% (IDA), and would finance in parallel category (3). - 28 - All disbursements for expenditures in foreign currencies would be fully docu- mented. Disbursements for expenditures in local currency against categories (1), (2), (5) and (7) would be made against statements of expenditure certi- fied by the Financial Director of FANALAMANGA and approved by the Ministry of Finance, because it would be impracticable to require full documentation; the administrative and accounting capability of FANALAMANGA to prepare statements of expenditure records is satisfactory, and there are adequate internal checks and controls, the review of which would be reinforced during Project implemen- tation (para 5.27). All other disbursements would be made against contracts and would be fully documented. An.estimated schedule of disbursements is given in Table 3. VII. PRODUCTION, MARKETS AND PRICES A. General 7.01 The mix of the forest products to be produced from the Mangoro area will depend on the choice of the industrial development program which will ultimately be selected. The definition and the selection of this industrial development program are the object of the studies described at paras. 5.28 to 5.33. The wood products which would be produced would be most likely to include one or several of the following: bleached kraft pulp, newsprint, sack kraft, sawnwood, linerboard, particle board and wood chips. The above study would review in detail the expected market situation for alternative and complementary products, with particular reference to export and domestic markets, expected developments of these markets, prices and price expectations. 7.02 The two main most likely forest products which can be derived from the Project production are bleached pulp and sawn wood. The present chapter discusses the production, markets and prices of these two products. B. Production Yields 7.03 The oldest plantations in the Project area are about ten years old, and about half of the total 65,000 ha currently established is less than five years old. Therefore limited yield data are available to calculate the ex- pected production from the Project plantations during their growth period (18 years for pulpwood, 25 years for sawnwood). On the basis of experience.in the Project area, and experience from similar plantations in Madagascar and elsewhere, it is esjimated that a gross mean annual increment over bark (MAI o.b.) of about 15 m /ha/year could be achieved. This growth is in line with that of similar plantations elsewhere in Eastern Africa. With allowances for the volume of 3bark and losses, the mean annual increment under bark (MAI u.b.) would be 12 m /ha/year for the Project plantations. This yield appears realistic as yields in similar plantations are about 15 cubie meters per ha at age 15 years, and trials carried out in the Project area yielded over 13 cubie meters per ha at 12 years. However, as the detailed inventory of the plantation is not yet completed, there remain some uncertainties regarding the final yield to be expected of the Mangoro Plantation. - 29 - Production 7.04 The ultimate size of the plantation program would depend on the type of industrial development which will be selected. If the wood resources are used mainly for sawmilling, it is probable that the total area of about 90,000 ha which would be expected to have been planted by the end of the proposed Prgject in 1984 would not be extended. îood production would average 1 million m u.b. per annum, i.e. about 400,000 m of sawnwood and an equiva- lent amount of by-products. If the wood resources are used mainly to provide raw material to a large pulpmill with a capacity of 250-300,000 tons of bleached sulphate pulp per annum, a total3area of 110-130,000 ha would be required to produce the 1.3-1.6 million m of wood necessary for the pulpmill. C. Markets and Prices Wood Pulp 7.05 Woodpulp is used for the manufacture of paper and paperboard of various types, the demand for which determines the demand for woodpulp. Woodpulp is produced in various grades, depending on the source of the raw material (softwood-long fiber and hardwood-short fiber) and on the industrial process used to manufacture the pulp. Present world consumption of woodpulp is about 190 million metric tons per annum and is expected to increase to about 270 million tons by 1990. Of the latter figure, about one-third would be bleached softwood sulfate pulp. However, most of the pulp produced in the world is produced in integrated pulp and paper mills established in the industrialized countries, and only about 25% of total woodpulp production is traded internationally, mostly in the form of sulfate market pulp, softwood pulp representing about 70% of the market. 7.06 Estimates of trade between regions in bleached softwood sulfate pulp and price projections were prepared by the FAO and an Industry Working Party organized by FAO's Advisory Committee on Pulp and Paper in 1978. The trade projections are summarized below: SOFTWOOD 1980 1990 Region Export Import Export Import - --------------000 ADMT ---------…-- North America 2,751 - 3,544 - Western Europe - 1,328 - 1,652 Japan - 653 - 1,279 Latin America - 205 175 - Other Eastern Hemisphere - 565 - 785 Centrally Planned - - - - Total 2,751 2,751 3,719 3,716 - 30 - 7.07 Although the price of pulp broadly follows general changes in macroeconomic activity, short term variations occur with changes in market conditions and in the level of inventories. During the 1970-1980 period, prices fluctuated each year by about 12% under and above their yearly average level. Average prices of softwood bleached sulphate pulp CIF Europe have remained fairly stable in the range of US$ 530/ton - US$ 700/ton (in 1981 prices) since 1965, except in 1978 when prices dropped to US$ 470/ton on average because of excess inventories. Pulp prices are expected to increase slightly in real terms during the next five to ten years; in the economic analyses included in the present report, an equilibrium long-term price of pulp of US$ 665/ton CIF Market Area (in 1981 prices) has been used, corres- ponding of an ex-mill price of US$ 565/ton. 7.08 Most of the woodpulp which might be produced from the Mangoro plantations would be exported, as not more than an additional 10,000 tons of pulp would be needed annually for domestic consumption during the next 15 years. It is expected that the major part of the pulp production would be exported to European and Far-Eastern countries. Sawnwood 7.09 Domestic production oi sawnwood is currently about 170,000 m , out of which not more than 20,000 m come from sawmills. The annual demand for mechanically sawn wood, mainly pine for construction and laminated wood, which is Ilready larger than proquction, is expected to increase sharply, to 110>000 m in 1990 and 130,000 m in 1995. 7.10 World demand for sawn softwood is expgcted to grow by 1.6 perceet p.a. over the next 20 pears, from 335 million m in 1977 to 405 million m in 1990 and 450 million m in the year 2000. It is expected that Canada and, to a lesser extent, the United States will substantially increase their production to meet this demand, but the share of developing countries in world trade should increase significantly; althougM it will remain limited in absolute terms, it should grow from 11.5 million m in 1975 to 30 million m by 2000. The bulk of this increase would be provided by Chile and Brazil. Of particular inter- est for Madagascar is the projection of a sustained demand for softwood from Japan and the oil-producing countries of the Middle East. Japan currently imports a substantial part of its softwood needs in the form of logs (mainly from the USA and the USSR), but it is expected that sawnwood imports will 3ake an increasing share 3of Japan's softwood imports, rising from 2.8 million m in 1975 to 6 million m in 2900. This could proviSe an outlet for the marketing of about 250 to 300,000 m out of the 400,000 m of sawn sof5wood which could be produced annually from the Mangoro area, 100 to 150,000 m being locally consumed. 7.11 Among the softwoods currently traded internationally, US Southern Pine most closely resembles the species which are grown in the Mangoro area, and its prices can be applied to Mangoro sawnwood. The average price for US - 31 - Southern Pine sawnwood was about US$110/m FOB in 1977; it is expected that softwood lumber prices will rise in real terms at an average annual rate of 2 to 3% Intil the year 2000, which would result in a net ex-mill price of US$158/m in Madagascar. This value has been used in the analyses. It happens to correspond closely to the prices of FMG30,000-33,000/m ex-mill paid for sawn pine on the local market in mid-1980. 7.12 During the thinning stage of the plantations, prices of sawnwood would be slightly lower, since most of the sawlogs would be of smaller size and of lower quality. It has therefore been assumed that the price of sawn- wood from 12 to 15-year thinnings would be 30% lower than the base price for sawnwood from 25-year logs. VIII. BENEFITS AND JUSTIFICATION A. Methodology and Basic Assumptions General 8.01 The proposed plantation Project would provide part of the raw material necessary for the operation of a silvo-industrial complex to be. established in the Project area. The justification of the Project is based on the entire Mangoro afforestation and silvo-industrial development program. The detailed plans for the silvo-industrial development of the Managro forest resources would be established as part of the UNDP-financed feasibility studies to be carried under the proposed Project (paras 4.06 and 5.01). The silvo-industrial development which would be finally retained would most probably integrate the production of a variety of products in order to utilize fully the available wood resources and to maximize the return on investment, taking into account the economic and financial constraints that the Government is currently facing and might continue to face in the coming years. The silvo-industrial development program is therefore expected to provide for the production of a mix of wood products of various sorts, such as woodpulp, sawn wood and wood chips. 8.02 Preliminary economic and financial calculations have been made to test the viability of the proposed Project, and of the overall program, including sunk costs. Two silvo-industrial models have been developed, corresponding respectively to the lower and upper ends of the spectrum of the size of capital investments which could permit the full utilization of the Mangoro forest resources. The least capital intensive model corresponds to the establishment of a saw milling industry, requiring capital investments of about US$75 million equivalent (in 1981 prices) phased over a 12 year period. The most capital intensive model corresponds to the construction of a large pulpmill with an annual capacity of 270,000 tons of pulp, requiring capital investments of about US$500 million equivalent (in 1981 prices) phased over a six year period. These two models, however, do not necessarily correspond to optimal development scenarios under capital resources constraints; the defini- tion of such optimal scenarios would be carried out as part of the silvo- industrial development studies described earlier. - 32 - 8.03 In order to show the economic rate of return of the proposed 3-year plantation Project, the return on the incremental costs and benefits was calculated; for the "without Project" situation, it was assumed for the sake of simplicity that the entire existing plantations would be used for sawmilling. All prices are expressed in mid-1981 prices, net of taxes and duties, and include a physical contingency of about 10%. Market wage rates were used. In the economic analyses, foreign exchange costs and benefits were valued at FMG 237/US$ (the exchange rate used in the financial calculations is FMG 200/US$) to reflect more accurately the scarcity value of foreign exchange. Output (sawn wood and woolpulp) was valued at export parity prices on the basis on the data presented in Chapter VII. The Project life was assumed to be 40 years, without residual value on capital investments. In the financial analyses, it was assumed for both models that silvo-industrial developments would be financed by equity (40%) of which Government would hold 51%, and by external debt (60%) at 12% interest rate per annum capitalized during con- struction and repaid over 20 years. Sawmilling Model 8.04 For the sawmilling model, it was assumed that plantation would stop at the end of the proposed Project. The total planted area would be about 90,000 ha, and would be exploited on a 25 years rotation. The sawmilling scheme is based on the construction of 12 id ntical sawmills, built over a 12-year Reriod, and each processing 80,000 m of roundwood annually (i.e. 35,000 m of sawn wood). Although by-products from felling and sawing waste could also be exported as pulpwood chips, these benefits have not been included in the analysis because the cost of chipping and exporting the chips could not be quantified without detailed studies. 8.05 The estimate of the capital and operating costs of the sawmills was derived from experience in other countries in East Africa, and from data gathered by the appraisal mission. Plantation costs were estimated on the basis of FANALAMANGA's experience during the ongoing first phase project. The costs of logging, transport and infrastructure were calculated on the basis of the FAO pre-feasibility study (para 4.06) and the mission's estimates. Pulpmill Model 8.06 The pulpmill model assumes that a bleached sulphate pulpmill with a capacity of 270,000 TPA would be established. The total planted area would be about 118,000 ha, and would be exploited on an 18 years rotation. Assumptions regarding pulpmill capacity, design, capital and operating costs are based on the FAO pre-feasibility study (para 4.06), updated for inflation between 1978 and 1981. Capital expenses which might be required for specific equipment for power supply, railway fixed infrastructure or port equipment have not been included, but corresponding tariffs and fees take these into account. B. Economic and Financial Evaluation Summary 8.07 The proposed plantation Project appears economically viable. The economic rates of return for the establishment of sawmills and for the con- struction of a pulpmill would be respectively about 12% and 11%. The annual - 33 - net incremental benefits, foreign exchange earning, and economic and financial rates of return of these two options are shown below, with more detailed discussions appearing at paras 8.10 to 8.16. A summary of the rates of return and sensitivity analyses is at Table 8. Invest. in Net Annual Net Annual Economic Financial End Use Processing Incremental Foreign Exch. Rate of Rate of Option Facilities Benefits 1/ Earnings 1/ Return Return -----------US$ million equivalent--------- (%) Sawmills (12 units 2of 80,000 m o.b.) 75 13 (6) 19 (12) 12 1/4 Il 1/2 Pulpmill (270,000 TPA) 500 80 (28) 97 (45) 10 3/4 10 1/4 1/ At full development in 92/93, before debt service and dividends, in 1981 prices. Figures in brackets show net benefits after debt service and dividends under the assumptions at para 8.03. 8.08 The proposed three-years plantation Project would provide continued employment to the 1,600 workers employed by FANALAMANGA. This figure would increase in future phases to about 5,000 as a result of logging and industrial operations. Unquantifiable benefits include the consolidation of the institution-building achievements of the first forestry project, pasture improvement, protection against soil erosion and benefits accruing to farmers in adjacent areas who sell their produce to Project workers. 8.09 The economic rate of return of the overall Mangoro afforestation program, including the proposed Project, was also calculated, taking into account the sunk costs incurred between 1969 and 1974, and between 1975 and 1980 during the first phase project. The EER would be about 8% if the planta- tion's production is used for sawmilling, and about 10% if it is used to provide raw materials for a large pulpmill. These marginal rates of return do not permit to draw firm conclusions regarding the appropriateness of the original decision to proceed with the afforestation program. It should be noted that the ERR on the overall afforestation program is quite sensitive to assumptions made for output prices (woodpulp and sawnwood) and, to a lesser extent, for mill capital and operating costs. A firmer judgement on the economic viability of the overall afforestation program could only be made, therefore, when the silvo-industrial development feasibility studies are completed. - 34 - Sawmilling Model 8.10 The base economic rate of return of the plantation Project (ERR) would be about 12%. It is not very sensitive to changes in capital and oper- ating costs. If any of these costs varied by 20%, the ERR would change by less than one percentage point in the opposite direction. The ERR is more sensitive to sawnwood prices: if prices decreased by 10% over the entire Project life, the ERR would fall to about 11%. If prices increased by 10%, the ERR would be about 13%. The switching values, using an opportunity cost of capital of 10%, are as follows: about 40% for afforestation and mainten- ance, and for logging and transport, over 100% for sawmills capital and operating costs, and about 20% for the benefits. 8.11 The base financial rate of return would be about 11.5%. Like the ERR, it is not sensitive to variations in costs and benefits. The Government cash-flow is shown at Table 4. The period 1981/82 - 1983/84 corresponds to the proposed plantation Project and shows a cumulative deficit of FMG 840 million (US$ 4.2 million) over the three-year period. The net cash flow would become positive in Project Year 8. At full development in 1991/92, Government's net annual cash flow would be FMG 2,600 million (US$ 13 million) in 1981 prices before interest, debt service and distribution of dividends, and FMG 1,200 million (US$ 6 million) after interest, debt service, and distriblition of dividends under the assumptions made at para 8.03. Net foreign exchange earnings would be about US$ 19 million equivalent before interest, debt service, and distribution of dividends, and US$12 million after these distributions. Pulpmill Model 8.12 The base ERR would be about 11%. It is moderately sensitive to changes in capital and operating costs. A change of 20% in capital costs would result in a change of the ERR by about two percentage points in the opposite direction. A change of 20% in operating costs would change the ERR by about one percentage point. The ERR is sensitive to pulp prices, which is usual for this type of industry. A 10% decrease in pulp prices over the entire Project life would result in a decrease of the ERR from about 11% to 9%. A delay of one year in pulp production after the pulpmill has been built would lower the ERR to 10.5%. If production capacity decreased by 10% with an accompanying decrease in variable costs, the ERR would be about 10%. Because the cost of the afforestation program is small compared with the cost of establishing a pulpmill, the viability of such investment would not be significantly affected by delays in starting construction. The switching values, using an opportunity cost of capital of 10%, are as follows: about 50% for afforestation and maintenance, and for logging and transport, 10% for pulpmill capital costs, 15% for pulpmill operating costs, and 5% for the benefits. 8.13 The base financial rate of return would be about 10%. Like the ERR, it is moderately sensitive to changes in costs and quite sensitive to changes in benefits. The Government cash-flow is shown at Table 5. The net cash-flow would show a cumulative deficit of US$ 4.2 million equivalent in Project Year 3 as a result of the proposed three-year plantation Project. The net cash flow would become positive in Project Year 9. At full develop- ment in 1992/93, Government net cash-flow would be FMG 16,000 million (US$ 80 million) before interest, debt service, and distribution of dividends, - 35 - and FMG 5,600 million (US$ 28 million) after interest, debt service and dividends. Net annual foreign exchange earnings would be about US$ 97 million equivalent (respectively US$ 45 million) before (respectively after) interest, debt service, and distribution of dividends. C. Project Uncertainties and Risks Uncertainties 8.:l4 There are several uncertainties which may affect the above conclu- sions on the economic and financial viability of the Mangoro afforestation program. The industrial development plans for the utilization of the wood produced by the Mangoro plantations are not finalized, and therefore the nature and the scope of the future investments, and the organization and management details of the future industrial operations are not known. The basic data used in the two models (pulpmill and sawmills) examined above mostly result from the updating of prefeasibility studies carried out in 1978, and there is a significant margin of error in assessing the cost of the various components. Finally, the forecasting of long term output prices yields inherently uncertain results. Most of these uncertainties are expected to be resolved by the feasibility studies included in the proposed affore- station Project. Risks 8.15 There are no unusual risks regarding the continuation of the affores- tation program. Risks arising from forest fires would be reduced by the provision of additional fire-fighting equipment, fire watching towers, pruning of trees and controlled burning. Risks of disease outbreak would continue to be controlled by systematic health monitoring of the plantations. Potential, problems due to conflicts with farmers and cattle owners in the Project area or to social unrest are reduced by the pasture improvement program and by FANALAMANGA's management good relationships with its labor force and the local community. FANALAMANGA might be converted into a socialist enterprise, and the impact of such a change on FANALAMANGA's efficiency cannot be foreseen at this stage (para 5.26). However, the risk of adverse developments within FANALAMANGA is mitigated by Government's strong commitment to the Project. Another risk is that wood yields could be less than estimated which would delay implement- ation of the silvo-industrial development of the Mangoro Valley, and somewhat reduce its profitability. 8.16 The risks which might affect the success of the silvo-industrial development program result from the uncertainties mentioned in para 8.13. If the industrial development finally retained required large investments, Government might not be able to raise sufficient funds, and the industrial development program would be delayed. This, however, would not significantly affect the viability of the afforestation program as a whole because the costs of afforestation and plantation maintenance are small compared with the cost of a silvo-industrial complex. However, interrupting the plantation program until industrial development planning is completed would seriously disrupt the Project entity and might jeopardize the success of the entire program (para 5.01). To continue the plantation program while completing the industrial development studies is therefore the best strategy. - 36 - IX. AGREEMENTS REACHED AND RECOMMENDATION 9.02 Assurances were received at Credit negotiations that: (i) the consultants employed to carry out research work and to assist in the studies for the preparation of projects in the agriculture and forestry sectors would have terms of reference, qualifications, experience and conditions of employment satisfactory to the Association (para 5.21); (ii) Government would inform the Association of any intended changes in FANALAMANGA's management and capital structure sufficiently in advance to give it the opportunity to comment on such changes, and that Government would cause FANALAMANGA to continue to employ a General Manager with qualifications and experience satisfactory to the Associa- tion (para 5.26); (iii) FANALAMANGA would continue to follow the accounting, auditing and reporting requirements satisfactory to the Association (para 5.27); (iv) Government would discuss with the Association the progress and implementation of the silvo-industrial development study whenever required, and would continue to employ con- sultants with terms of reference, qualifications and experience satisfactory to the Association to carry out such study (para 5.29); (v) the boundaries of the plantation areas would continue to be - drawn so as to minimize any conflict with local land use patterns (para 5.34); and that (vi) sound environmental practices would continue to be followed under the Project, and that adequate steps would be taken by Government to minimize any adverse ecological effects resulting from silvo-industrial development (para 5.35). 9.03 Conditions of credit effectiveness would be that (i) the statutes of FANALAMANGA have been revised in a manner satisfactory to the Association (para 5.22) and that (ii) a subsidiary agreement, satisfactory to the Associa- tion, between Government and FANALAMANGA, and the BADEA loan have been executed (para 6.04). 9.04 Subject to the above conditions, the proposed Project would be suitable for an IDA credit of SDR 16.3 million (US$ 20.0 million) to the Government of Madagascar on standard terms. TABLE 1 - 37 - MADAGASCAR MANGORO FORESTRY PROJECT - PHASE II Project Cost (FMG Million) Foreign 1981/82 1982/83 1983/84 Total Exchange 1. _Aforestation () (a) Surveys 3.3 3.3 3.3 9.9 25 (b) Pine 241.0 241.0 241.0 723.0 35 (c) Eucalytpus 9.3 18.6 18.6 46.5 35 Subtotal 253.6 262.9 262.9 779.4 35 2. Maintenance (a) Fire Control & Protection 60.9 60.9 60.9 182.7 25 (b) Fertilization 226.3 84.3 84.3 394.7 90 (c) Roads Maintenance 1.8.0 18.0 18.0 54.0 80 (d) Buildings Maintenance 21.0 23.0 25.0 69.0 10 Subtotal 326.2 186.2 188.2 700,6 64 3. Raads 212.9 212.9 212.9 638.7 80 4. Buildings and Housing 140.1 124.7 124.8 389.6 30 5. Administration (a) Staff Salaries & Allowances 159.5 162.2 170.5 492.2 -- (b) Vehicle Running Costs 30.9 31.8 32.5 95,2 80 (c) Miscellaneous 10.0 10.0 11,0 31.0 20 Subtotal 200.4 204.0 214.0 618.4 13 6. Vehicles & Eguipment 164.6 576.1 82.3 823.0 95 7. Pasture Improvement 7.3 7.3 7.3 21.9 70 8. Research and Training 25.3 25.3 25.3 75.9 10 9. Studies (a) Preparation Other Projects 50.0 50.0 100.0 200.0 60 (b) Feasibility Studies 100.0 50.0 50.0 200.0 90 t Subtotal 150.0 100.0 150.0 400.0 75 TOTAL BASE COST 1/ 1,480.4 1,699.4 l,267J7 4,447.5 57 Physical Contingencies 148.0 169.9 126.8 444,7 57 Price Contingencies 202.0 444.9 521.5 1,168.4 57 TOTAL PROJECT COST 1,830.4 2,314.2 1,916.0 6060-6 57 1/ In 1981 constant prices. - 38 - TABLE 2 MADAGASCAR MANGORO FORESTRY PROJECT - PHASE Il PROJET FORESTIER DU MANGORO - PHASE II Main Vehicles and Equipment to be Procured Principaux véhicules et équipement à acquérir …____--FMG '000------ Number/ Unit Cost/ Total Cost/ Items Nombre Prix Unitaire Prix Total Articles Bulldozer 140-160 HP, with shovel 2 26,400 52,800 Bulldozer 140 à 160 CV équipé de pelle Grader 120-140 HP 1 24,200 24,200 Niveleuse 120 à 140 CV Grader with front shovel 3 22,000 66,000 Niveleuse équipée de pelle frontal 100-120 HP 100 à 120 CV Loader 80-100 HP 4 17,600 70,400 Pelle chargeuse 80 a 100 CV Tipper truck 4-4.5 t l0 14,000 140,000 Camion benne 4-4.5 T. Tipper truck 2-4 t 3 8,000 24,000 Camion benne 2 à 4 T. Tipper truck 6-8 t 5 11,000 55,000 Camion benne 6 à 8 T. Flatbed truck 6-8 t 2 10,000 20,000 Camion plateau de 6 à 8 T. Covered truck 7-9 HP 17 2,600 44,200 Camionnette bâchée de 7 à 9 CV Trailer (boxed) 2-3 t 3 900 2,700 Semi-remorque 2 à 3 T. à caisson Disc plough (16) 3 3,500 10,500 Charrue à disques (16) Disc plough (20) 3 1,200 3,600 Pulvériseur à disques (20) Moped 9 220 ],980 Vélomoteur Light truck 3-5 HP 7 1,600 11,200 Fourgonnette 3 à 5 CV Motorscraper 2 29,000 58,000 Motorscraper Water truck (fixed) 4-6,000 1 1 10,000 10,000 Camion citerne fixe 4 à 6,000 1 Roller 2 19,000 38,000 Autocompacteur Van 7-9 HP 4 2,900 11,600 Break 7 à 9 CV Automobile 8-10 HP 1 3,500 3,500 Berline e à 1C CF 4WD vehicle 6-9 HP 3 3,000 9,000 Voiture tout terrain vitrée 6 à 9 CV Radio telephone, fixed 3 960 2,880 Radio téléphone fixe Walkie-talkie 10 530 5,300 Poste émetteur-récepteur portatif Water tank with pump, 4000 1 il 3,000 33,000 Citerne avec moto-pompe, 4,000 1 Watering pump 7 1,050 7,350 Moto-pompe d'arrosage Watering equipment 7 2,000 14,000 Accessoire pour arrosage Office equipment - - 7,000 Equipement de bureau Nursery equipment, misc. 7 370 2,590 Autre équipement pépiniêre Fire-fighting equipment - - 6,000 Equipement peleton pompier Inventory equiprent - - 6,600 Equipement inventaire Carage equipment - - 20,000 Equipement atelier Survey and road work equipment - - 28,000 Equipement topographique et route Camping equipment - - 3,500 Matériel de camping Other equipment - - 30,000 Autres matériels et équrpement 822,900 Phased as fotlows: Proect Year: 1981 1982 1983 Total 20% 70% 10% 100% FMG m. 164.6 576.1 82.3 823.0 TABLE 3 - 39 - MADAGASCAR MANGORO FORESTRY PROJECT - PHASE II Estimated Schedule of Disbursements (US$ Million) Cumulative IDA Fiscal Year Quarterly Disbursements and Quarter Disbursements at End of Quarter 1981/82 September 30, 1981 December 31, 1981 0.4 0.4 March 31, 1982 1.2 1.6 June 30, 1982 1.2 2.8 1982/83 September 30, 1982 2.0 4.8 December 31, 1982 2.0 6.8 March 31, 1983 2.0 8.8 June 30, 1983 2.0 10.8 1983/84 September 30, 1983 1.5 12.3 December 31, 1983 1.5 13.8 March 31, 1984 1.5 15.3 June 30, 1984 1.5 16.8 1984/85 September 30, 1984 1.5 18.3 December 31, 1984 1.0 19.3 March 31, 1985 0.7 20.0 June 30, 1985 -40- TABLE 4 MADAGASCAR MANGORO FORESTRY PROJIECT - PHASE Il Government Cash Flow - Plantation for Sawmilling 1/ (FMG billion) 81/82 82/83 83/84 84/85 85/86 86/87 87/88 88/89 89/90 90/91 91/92 92/93 99/00 SOURCES OF FUNDS External - Phase II Project 1.06 1.27 0.88 UNDP Grant - Studies 0.09 0.05 0.05 Other External Financing: Loans - Sawmills - 1.64 - - 2.09 - 2.23 - - 2.09 Equity - Sawmills - 0.54 - - 0.68 - 0.73 - - 0.68 Government: Phase Il Project 0.27 0.32 0.22 - - - - - - - - _ Equity - Sawmills - 0.56 - - 0.71 - 0.76 - - 0.71 Sawnwood Sales . - 0.70 0.70 2.20 2.20 2.31 4.83 5.04 5.25 7.28 7.28 7.28 TOTAL SOURCES 1.42 4.38 1.85 0.70 5.68 2.20 6.03 4.83 5.04 8.73 7.28 7.28 7.28 USES OF FUNDS Afforestation and Studies 1.42 1.64 1.15 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.55 Logging, Transport and Miec. Invest. - 1.50 0.51 0.51 1.36 1.39 1.39 1.39 2.32 2.32 2.32 2.76 3.40 Sawmills Construction - 1.24 - - 2.48 - 3.72 - - 2.48 - - - Sawmills Operation - - 0.18 0.18 0.18 0.54 0.54 1.08 1.08 1.08 1.44 1.44 1,44 Interests and Principal - 0.09 0.23 0.21 0.27 0.37 0.40 0.48 0.45 0.42 0.46 0.41 0.15 Surplus Funds 2/ - (0.09) (0.22) (0.60) 0.99 (0.50) (0.42) 1.48 0.79 2.03 2.66 2.27 1,74 TOTAL USES 1.42 4.38 1.85 0.70 5.68 2.20 6.03 4.83 5.04 8.73 7.28 7.28 7.28 GOVERNMENT CASH Fl.OW (0.27) (0.97) (0.44) (0.60) 0.28 (0.50) (1.18) 0.76 0.40 0.33 1.36 1.16 0.90 1/ In 1981 constant prices. See assumuptions at para 8.03. Figures may not exactly add up due to rounding. :/ Of which 5l accrue to Government, - 41 - TABLE 5 MADAGASCAR MANGORO FORESTRY PROJECT - PHASE II Government Cash Flow - Plantation for Pulp Production 1/ (FMG billion) 81/82 82/83 83/84 84/85 85/86 86/87 87/B8 88/89 89/90 90/91 91/92 92/93 99/00 SOURCES OF FUNDS External - Phase Il Project 1.06 1.27 0.88 - - - - UNDP Crant - Studies 0.09 0.05 0.05 - - - - Other External Financing: Plantacion 84/85-87/88 - - - 0.92 0.93 0.94 0.95 Pulpmill Capital Loans - _ - 2.48 7.29 16.43 28.31 8.74 4.95 Pulpmill Capital - Equity - - - 0.11 2.38 5.37 9.25 2.86 1.61 Governmenit Phase Il Project 0.27 0.32 0.22 - - - - - - _ _ _ Plantation q4/85-87/88 - - - 0.23 0.23 0.24 0.24 - - Equity Investment - Pulpmill - - - 0.84 2.48 5.58 9.63 2.97 1.68 Woodpulp Sales - - - - - - - 11.99 19.54 23.98 26.97 30.51 30.51 TOTAL SOURCES 1.42 1.64 1.15 5.28 13.31 28.56 48.38 26.56 27.77 23.98 26.97 30.51 30.51 USES OF FUNDS Afforestation and Studies 1.42 1.64 1.15 1.15 1.16 1.18 1.19 0,78 0.88 0.93 0.93 0.99 0.92 Logging, Transport and Mis-. invest. - - - - - - 7.19 3.78 4.00 4.56 5.04 5.18 3.49 Pulpmill Constructian - - - 4.13 12.15 27.38 40.00 10.97 4.24 0.94 0.94 0.94 0.94 Pulpmill ()peration _- - - - 6.40 7.65 7.98 8.40 7.40 7.40 Interests and Principal - - 0.01 0.01 0.01 0.01 0.01 0.01 0.01 6.60 5.69 5.10 1.70 Surplus Funds 2/ _ (0.01) (0.01) (0.01) (0.01) (0.01) 4.62 10.99 2.97 5.97 10.90 16.06 _oTAL USES 1.42 1.64 1.15 5.28 13.31 28.56 48.38 26.56 27.77 23.98 26.97 30.51 30.51 NET COVERNÎMENT CASH FUW (0.27) ç0.32) 0_.23) çL08) (2.72) (5.83) (9.88) (0.62) 3.92 1.51 3.04 5.56 8.19 1/ in 1981 constant prices. See .ssusmptions at para 8.03. Figures may not e.actly add-up due to rounding. 2/ Of which 51" accrue to Cevernment MADAGASC AR MANGORO FORESTRY PROJECT - PHASE II Caicolation of Economic Rate oU Rntun - Plantation for Savmjlinj (FMG million In 1981 pric-s) 81/82 82/83 83t84 84/85 85/86 86/e7 87/88 88/89 89/90 90/91 91/92 92/93 93/94 94/95 95/96 96/9r Wll1H PROJECO Cosis Plantation. Rnd M.aint-n-nne 1,421 1,627 1,135 400 400 400 400 400 400 400 400 400 400 400 400 545 57 Logging Rnd Transport - 365 365 365 1,140 1,140 1,140 2,070 2,070 2,070 2,515 2,515 2,515 2,515 3,145 75 Sannill5 Capital Co-ts 1,240 - - 2,480 - - 3,720 - - 2,480 - - - 4,960 - 80 Sannilit Operotimo Conns - - 18'1 180 180 540 540 540 1,080 1,080 1,080 1,440 1,440 1,440 1,440 2,160 80 Minceli anenon Ienenent, - 1,500 150 150 1,000 250 250 250 250 250 250 250 250 250 250 250 80 Total Cnots 1.421 4.367 830 2 6050 3800 3.8 280 4,605 4.605 4.605 9.565 6.100 Benef its Volume ni Saewnwoo /000 eO ) - - 35 35 35 105 15 105 210 210 210 280 280 280 280 420 Ave,a_g Unit Pric- (FMC GO /n ) _ _ 20 201 21 21 22 23 24 25 26 27 28 28 28 28 8ne-fits 700 700 735 2.205 2.310 2,415 5f040 5.250 5.460 7,560 7.840 7.840 L8 11_760 100 Net Denefite (L.421) (4,367) (,130) (395) (3,690) (125) (20) (3.635) 1,240 1.450 (820) 2,955 3,235 3.235 (1,725) 5660 WITIIOUT POOJECT Maintenance 793 '52 559 324 324 324 324 324 324 324 324 324 324 324 324 324 57 Lnoging an-d Tro-spnri - - 365 365 365 1,140 1,140 1,140 2,070 2,070 2,070 2,515 2,515 2,515 2,515 2,830 75 Sawmills Capital Co-s - 1,240 - - 2,480 - - 3,720 - - 2,480 - - _ 1,240 - 80 Saneili, Opnrating Costs - - 180 180 180 540 540 540 1,080 1,080 1,080 1,440 1,440 1,440 1,440 1,620 80 Mi,celîaneooa Innenleents - 1,500 150 150 1,000 250 250 250 250 250 250 250 250 250 250 250 80 Total Costs 793 3*292 1254 L019 4,349 2J254 ,254 5.974 3,724 3.724 6.204 4.529 4.529 4.529 5.769 5.024 Henef tee Vnln,e nf Sa.anwnnd ('000 I) - - 35 35 35 135 105 105 210 210 210 280 280 280 280 315 AnCrage Unit Price (FMC 'OS/n ) - _ 20 20 21 21 22 23 24 25 26 27 28 28 28 28 BAnefits 700 700 735 2-205 2.310 2S,1 5 5.250 5 460 7,560 7.840 7,840 7.840 8.820 100 Net 8ensfits (793) (3.292) (554) (319) (3 614) (49) 56 (_3559) 1.316 1.526 (744) 3,031 3.311 2071 3.796 Net In-re -entl geneltsi (628) (1,075) (576) (76) 1761 <761 (76) 762 <76) (76) <76) (76) (76) (76) (3,796) 1,864 toononie Rate nf Otetro: 12.257 MADAGASCAR NeANGORO FORRSTRY PROJECT - PRASE II Colo,lotion of ecoRromi Rote ai Retarn - flaotation for Falionill (FMG million) 92/98 81/82 82/83 83/84 84/85 85/86 86/87 87/88 88/89 89/90 90/91 91/92 92/93 93/94 94/95 95/96 96/97 -.rds F.K. % WITH PROJOCT Planting, RePîOnting -ad Maite.nance 1,421 1,631 1,149 1.147 1,162 1,177 1,191 784 878 927 927 992 992 976 931 923 923 57 Loogino and Transport - - - _ - - 3,686 2,453 2,470 2,691 3,109 3,311 2,856 2,856 2,856 2,856 2,856 75 Roads anA driAgoo - - - ' - 1,060 1,105 1,300 1,645 1,705 1,645 1,585 1,230 705 710 410 80 mi-celia-e-os Invertmonte - - - - - 2,442 227 227 227 227 227 227 227 227 227 227 80 PPID Mill - Capital Co-to - - - 4,130 12,154 27,376 40,002 10,970 4,244 944 944 944 944 944 944 944 944 80 ReIp Mi1l - 0ne,Otîng Co-ta - - - - - - 6,400 7,650 7,975 8,406 7,400 7,400 7,400 7.400 7,400 7,400 80 TOTAL COSTS 1.421 1.631 1,149 5.277 13 316 28.553 49.381 21.939 16.769 14.409 15.318 14.519 14,004 13,633 13.063 13.060 12.760 BEOEFITS - - 11.988 19.536 23.976 26,973 30.510 30,510 30.510 30,510 30.510 30.510 100 NET BENEF0TS (1.421) (1.631) (1.149) (5.277) (13,316) (28.553) (48,381) (9.951) 2.767 9.567 11.655 15.991 16.506 16,877 17,447 17,450 17.750 WlTliOUT 'ROJ2E-CT COBTS 11ain1enonco 793 552 559 324 324 324 324 324 324 324 324 324 324 324 324 324 324 57 Logging and Troo0oort - - 365 365 365 1,140 1,140 1,140 2,070 2,070 2,070 2,515 2,515 2,515 2,515 2,830 2,830 75 0a0o1lîn 0C05t0l Cortr - 1,240 - 2,48 - - 3,720 - 2,480 - - - 1,240 _ _ 80 Setmill Op-erotiîg CosSt - - 180 180 180 540 540 540 1,080 1,080 1,080 1,440 1,440 1,440 1,440 1.620 1,620 80 Miscolloneoou levestmenta - 1,500 150 150 1,000 250 250 250 250 250 250 250 250 250 250 250 250 80 TOTAL COSTS 793 3.292 1,254 1.019 4,349 2,254 2.254 5,974 3.724 3,724 6.204 4.529 4.529 4,529 5,769 5,024 5.024 BENEFITS Voltof 0 a n-ooo ('000 e3) - - 35 35 35 105 105 105 210 210 210 280 280 280 280 315 315 Average UOit Prire (FNG 'Coo/-3) - - 20 20 21 21 22 23 24 25 26 27 28 28 28 28 28 BENEFIT5 700 700 735 2.205 2,310 2.415 5.040 5.250 5.460 7.560 7.840 7,840 7,840 8.820 8.820 100 N8T BENEFITS (793) (3.292) (554) (319) (3.614) (49) 56 (3.559) 1.316 1,526 (744) 3.031 3.311 3,311 2.071 3.796 3.796 N8T INCRENENTAL BENEFITS (628) 1,661 1595) (4,958) <9,702) (28,504) (48,437) (6,392) 1,451 8,041 12,399 12,960 13,195 13,566 15,376 13,954 E-ofnto Rate of RStre, 10.757, - 44 - TABLE 8 MADAGASCAR MANGORO FORESTRY PROJECT - PHASE Il Economic and Financial Rates of Return and Sensitivity Analyses 1/ Pulpmill Sawmills Model Model Change Econ.RR Econ.RR Base Rate of Return - 10.75 12.25 Afforestation and Maintenance +20 10.50 11.00 Afforestation and Maintenance -20 11.00 13.50 Capital Costs - Mill +20 9.25 12.00 Capital Costs - Mill -20 12.75 12.50 Operating Costs - Mill +20 9.75 12.00 Operating Costs - Mill -20 11.75 12.50 All Costs +20 7.75 10.25 All Costs -20 14.50 14.25 Value of Output +10 12.25 13.00 Value of Output -10 9.00 11.00 One Year Delay in Implementation - 10.50 11.50 1/ Rounded to the nearest 0.25% - A, - xR6oo oSllIY pFOJ8CT - PHEAS Il P?ROJT FRESTMFl DIU NAIuGo * PNASE Il Physical Work Schedul. of Phase 7_"/ Italiatlorm Phv.iss,s de 1l Phase ài/ 73/74 74/75-/ 75/76 76/77 77178 78179 791803/ Total Planted Are. (ha) Surf-ce Pl.mtée (h.) Appraisal - 7,000 7 000 7,000 7,000 7,000 - 35,000 Zvaluatiro Actual - 6,19O_' 5,470-1 6,200-/ 8,000 s,800 6,590 41,250 RUalisi Road$ (ku) Route, (Or) Appraisal; Service Roadu 19 37 - - - - - 56 Evaluatiom: Principales * Prisary-Second.ty 56 168 168 168 168 112 - 840 Secondaires Plantation Tr-cks 60 182 182 182 182 122 - 910 Pistes sob-Total 135 387 350 350 350 234 - 1,806 Sous-Total Actual: Prlaary Roeds6/ - 36 165 21 21 15 72 330 Réalisé: Prinnipa1es- Secosdary Roads - 34 79 70 42 78 62 365 Secondaires Plantation Tracks - 130 293 184 448 574 265 1,894 Pistes Sub-Total _ 200 537 275 511 667 399 2,589 Sous-Total Firebreaks (ke) Pare-feu (k<) Appraisal 20 58 58 58 58 38 - 290 ERalsation Actual - 34 256 179 51 88 202 810 Réalisé Buildings aud Bouses Batisente et Logements Appraisal: Exploitatio- f 15 - - 23 Evaluatln: Batiments Houses-Hard 15 29 - - - - - 44 Lgts. Dur Hosses-Prefa.hioated 370 740 - - _ _ _ 1,110 Lgts. Préfab. Total Bouses 385 769 - - - _ _ 1,154 Total Logements Actual: Eoploitatio: Réalise: 8ratimets: Brick and Concrete - - - 5 14 13 10 42 Dur daffle a-d Clay - 19 18 34 32 5 9 117 Semi-ilur Louses: Logements Brick and Conorete - - 29 - 41 162 104 336 Pur Waffle and Clay - 156 577 (574)Z/ 74 7 41 860 Semi-dur Prefabricated - 41 483 120657 (721- _ 29 555 Préfabriqsé Total Neu Hosses - 197 1,091 - 120 169 174 1,751 Total No-veou. LgCs Pasture Isprooemect (ha) Am,elioration de Pâturages (ho) Appraisal - 400 400 400 400 400 - 2,000 EBalaotio, Aotoal - - 15 55 360 375 240 1,045 Réalisé l/ Sovoce: FAllAVMANGA a.oual reports and missio's estibsate. 1 S 0:r.e Rapports annuels de la FAiALAINGA et estimatios Rsportiog periods are July ; - Juns 30. Figures from the de la sission Les péri.des d'otivité vo-t do 1er juillet a,praisal report referred te catender years and have been au 30 juin. es chiffres du rapport d'évaluatioo 3ijusted in this table to correspond to FANALAMAGA corressondent aux annoées alesdaires rt ort Até ajustes reportisg geriod. dons ce tableau pour correspondre s gériodes d'ativités d.e la FANALANCA. 2/ Astivitios started Ln November 1974. 2/ Les ootioités ort oovonco os novembre 1974 3/ Espcted. See also the NBte b.oo. 31 Prév. Voir a-si le Nota Bens ci-dessous. 4/ Belo, taogot beca-se of old eqjipsnt in insufficient 4/ Es-dessous des objectifs à caà se de la 'ét.sté ot de sumbero, diifficultieu in spare parts supply and l'insuffisane es so-bre de l'éqoipemet, la difficrte! reorganisation of FAN4ALAMAGA. d'obtenir de. pièces détachies et la réorga.isation de la FANAIAMAiNGA. 5/ BoI': torget becau.. of delais Os obtaining eqoipnot. 5/ En-dessous ds objectifs à case des délais d'obreoron de I O9i'ipes,set. 6/ Incles servcie rouis 6 Co nd On routes doeric 7/ Already existin3 hous2s diisaosoebled aid rebuilt On other 7/ Maiso^s déjà e-ista-tes denontios et remonteos dots do:treu Places e-droits - 46 - ANNEX MADAGASCAR MANGORO FORESTRY PROJECT - PHASE II Selected Documents and Data Available in the ProJect File A. Selected Reports and Studies on the Sector or Sub-Sector There is no sector or sub-sector report. B. Selected Reports and Studies Relating to the Project Bi. Rapport préparatoire, Phase II, Projet forestier MANGORO, FANALAMANGA, Mai 1979. B2. Pulp Mill Project - Mangoro (2 Volumes), UNIDO Project DP/MAG/74/008, FAO, Rome, September 1978. C. Selected Working Papers Cl. Working papers (one volume), May 15, 1981. - 47 - MADAGASCAR Ministry for Rural Development and Agrarian Raform . Cabinet~ ~ ~~~Mi |ie _Scr{tary Generel I | Administration and andisoatons External Relations OPS Finance Matters and Documentations Services Director General of : _Direetors of Rural Oevelaprment, _ irector of Studies Rural Oevelopment Agrarian Reform and _and Programmning of the faritanies Co operative Development 16) Agrari_n Reform Agriculturai Rural Development and Co-operative Statistics Services for the Development _ Fivondronam Managemetont 0 Regionai De- (Currentlv 181 H Crop Produçt tan aof EnterPrises veloprment _________________________ ~~~~~~~Authorities ~attl Programing and Parastatas Local Extension Irrigation I Finance Services foar | | ________________|___ or the Fokantany I | § j Studies and H INterand Forestry Laboratories Education and Animal Production Agricultural Training !W Agricuitural 7 Equ ipment | Worid Bank -21863 MADAGASCAR MANGORO FORESTRY PROJECT - PHASE Il FANALAMANGA ORGANIZATION CHART | OARD OF l | DlFtECTOftS GENEHAL MANAGER a i I AND~~~~~~~~~NGINEERING ~~~~~~~~~~~AND EXPLOITATION PlANlAIlN NDCIILINEERING NANCI ADMINISTRATION l RESEANCR A G r NDRTttERN | CENTllAL l SOUTHERN l | DEPARTMENT w | DEPARTMENT DEPARTMENT < 0 OtVtSi O N I l l DIVISION 2 l SECTION SECTION L~~O?~ SECTION Jjj L 3[j~ 1 I~O~'hE~TION|SECTION 2 Wcu Id Bank - 22099 MADAGASCAR MANGORO FORESTRY PROJECT - PHASE Il Implementation Schedule 1981182 1982V83 1983/84 Activities 1 2 3 4 1 2 3 4 1 2 3 4 Afforestation _______ Faasibility Study Phase I Review of Phase 1 Phase 2 Review of Phase 2 Phase 3 _ Review of Phase 3 Draft Final Report Review - d Final Report Wo,ld Bank-22280 ; -12- MADAGASCAR 12t MANGORO FORESTRY PROJECT, PHASE il Antseranano PROJET FORES HEP DU MANGORO, PHASE if PROJECT LOCATION LOCATION DU PROJET -l Z one u roiertryPronegorso Pasved roods 5055 'N mbsE _ m agon en uro iec anea Routes gouedronrese a N O Othen forestîy -nd roioted projects _ All-weather roads Heal-vi} ' = V.h, ir. Autresprojts f-resîsers Routes accessibles en toute siso H 5- Svko Raîl-ays VoAars Saaalsa + 4 Cmnrde/fers > aiu ` Cashewnut plantations + AIrpafts 10 Chro,ite treaetent - plontation Rivers if Traitement ferra-chrome -plantation ~ -Rivières I Jt - 5«- Samhass TrannsiasionpaInsandrailwaayties-SlB Forest= - Poteaus et traverses Forêts C,nchiona n-- desn: bou,aOeOrs Ans.o.lns ]+ o néspa \ ~iai Tramai8 centers - Antoloha i. Centres de formation Mahajanga Mo-aitetra KILOMETERS 0 50 100 150 2a0 il: h`'t tisa J MILES 0 50 500 , $ isîÇ; -j j~~~~~~~~ ikstaSasu~ J IsApikon,5, Ilon soe,=\ in e t ° l a n b Y > a ~ ~ ~ A n b # ~ J2 0 ) } ) f 2 Bsosmr Sîii An b n;l anna n &our Feo ar tsinpronan AVY o z r m b i cq ÀaI \,nss l) SAmshnlnls lrrbntonil Csinîsu a \-nsat _ «#o Anaîasaîsn ala aaeA Toomositia Ch~~~~~ an n Pi W -<4einJ C h a n n e / W L6 a J» Fonjok sirna krooa ohibinony / N D / A N -20= MA.hsbs Moarssrî2 ; ~ ~ ~~Mratrn? onoar- -. - Mpoîaolbo/ C;; C F A N/ - - rOrS sFiandrooao 0 0 rg; Man cO g % ,VD ?,to 9 M ananiAry~~~~~~~~~~~~~~~~~~~~~~ssiianiaanini,sîrî f~~~~~~~~~~~~~~~~~isis lOi .-s ons,aransosisi sO -22Moro7A;$> ' Berorobo ~~~ °< \à / 0 22'F g ' < < ,qhibe ~~~~ Yyishvoeno X i0 Wgr/d dn tt Y/tVf dnsininyn ilassn n \\t > J ,i *raifangdnai doi atma ai aîastsaoani 0 : 0  w Be-aOIla/j aacriaccstcsiisnsn iiiriism iln,ssisd rois ~ ~ ~ W~ldÙr r 0,11~~~~~~~~~~~~4 -24B' 24'- ____pamne f fi ___ __ ___' _*= _l _t- @ t _ ,olanar~~~~~o . >. n*S_.g to~~~~~~46 | 42' 44- - 46' a . ___ <0 oa~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~C I ~ ~~~~~~~~~~~~ B RD 126 Arz 1_ ~~~~~~~I "A2 ' ./ ' A. \ - 'A'e-] ;t 5 - or MMTAAM s.sARIA r,0 9~~~~~ AA,IAIA1 A M n olc rsowdvo 'A,IU' 2) ' 'oA Mt"f s- A i k< - I 1 + ni-..~~f "%,Ml k r, -' 171 bPAS X Â- 1'$' f t^ SROJfT fOfSTfR D AMAGOi ..\-..)r... 7E's ' ETfE97 s ~ ` <> SP T w s r E é O' ° D lfAR V TIA f "l ; -, EI f_ \ X lyl~~~~~~FREESETRCY PR JC > ("